By Paul Mulligan,
Senior Vice President, Consumer Lending
Now that the holidays are a distant memory, everyone has settled back into their “normal” routines, which inevitably includes paying the bills. Hopefully, you didn’t max out all your credit cards, but if you did, that may create strain on your budget, especially if you also have other debts you’re paying off as well, like college loans.
The reality is this situation can happen to anyone, at any time. You may run into some unexpected expenses or you simply aren’t budgeting wisely, or you haven’t figured out how to save enough and the next thing you know, you have multiple debtors hitting you with high interest rates every month. It can make it hard to make a dent in your balances and become financially secure.
If you own a home and have built up equity, there is an option that could help get you out of debt faster than paying off all your credit cards each month. You could look into a home equity loan. Especially if you’ve been paying of your mortgage for several years, or your home value has increased significantly, you may actually have an easy time securing a home equity loan.
Using a home equity loan to pay consolidate multiple debts has some advantages. For instance, home equity loans often come with lower interest rates than credit cards, making the interest you’re accruing each month lower. With a home equity loan, you are also only paying a single creditor, making your monthly budgeting a little easier to manage, and a longer repayment period may help you reduce your monthly payment, giving you a little breathing room in your budget. In addition, if you are also using the home equity loan to fund a major home improvement project, the interest may also be tax deductible.
But, you should be aware there are risks with consolidating debt into a home equity loan. Perhaps the biggest is that, if you default on the loan, your home can go into foreclosure. Unlike credit card debt, it’s almost impossible to discharge a home equity loan. In addition, if your home’s value drops, you could end up paying more than it is actually worth at that point.
Perhaps the biggest drawback is loan consolidation doesn’t address the spending habits that got you into a debt problem to begin with. In addition to paying off your loans, you should also get into better spending habits to make the most of your paycheck and avoid getting into even more debt. It’s very easy to start running up credit card balances if you aren’t careful. So, if you are having a hard time putting money into savings, there are several ways you can help yourself become more financially responsible, including using a savings app like Plinqit.
But, if you think a home equity loan could be the right option for you, come speak with one of our financial specialists, who can help you make a smart decision and get your finances back on track.