Got Debt?! Your Home Equity Can Help | Financeation

Are your credit card bills keeping you up at night? If you are a homeowner with some equity, a home equity loan to consolidate your debt could be a savvy move to get you on firm financial footing again.

When you consolidate your debt via your home equity, you take out a home equity loan to get a lump sum of cash. You can use the cash to pay off your consumer debts, so the home equity loan?often referred to as a second mortgage?effectively replaces your various consumer loans.

However, consolidating your debt with your home equity is no silver bullet. It will not magically make your debt disappear, nor will it put you in a better financial position if you have bad spending habits that you don?t get under control.

4 reasons to use home equity for debt consolidation

Here is what debt consolidation with home equity financing can do for you:

• Make things simple. You will be replacing several monthly payments with one, making repayment easier to manage and late fees a thing of the past.
• Slow the growth of existing debt. Interest rates on second mortgages are typically far lower than consumer credit rates, since your mortgage is secured by your home as collateral. A lower interest rate means your existing balance won?t be growing as quickly.
• Reduce monthly payments. Whether through a lower interest rate or a longer repayment period, you can lower what you pay each month toward your consumer debt. (Debt consolidation will not necessarily reduce the interest paid over the lifetime of the loan, however. In fact, it is important to note that debt consolidation can cost you as much or more in total repayment costs, particularly if you stretch out the repayment period.)
• Allow you to deduct more from your taxes. Mortgage loan interest payments are tax deductible, but consumer debt interest payments are not. Consolidation with a home equity loan can reduce your federal income tax through an interest-paid deduction on Schedule A.

Example: home equity

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Article Source: http://www.foxbusiness.com/personal-finance/2011/05/20/got-debt-home-equity-help/

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