Should You Include Credit Card Debts in a Home Equity Loan Consolidation?

Making the minimum repayment every month is not the way to clear your credit card debt. The total sum of the credit card debt you are paying off increases significantly with the accruing of the high variable interest charges. You waste hundreds and thousands of dollars on interest charges if you are trying to repay your card by making a minimum repayment.

Most credit cards have variable interest rates so you are going to pay more minimum amount when the interest rate increases. When you owe money in more than one credit card, it will be even harder to clear off the debt in the messy debt situation. If you feel stuck in paying back your credit card debts, you can consider getting a home equity loan consolidation.

Home equity loans means the bank borrow you an amount that is the difference between the current worth of your property in the market and the amount that you still owe it. For example, if the worth of your home is a $200,000 and you still owe $100,000, you have $100,000 worth of equity. There are 2 types of home equity loans including HEL and HELOC.

HEL home equity loan is like a second mortgage with fixed interest and loan term that ranges from 10 – 15 years. HELOC is a revolving credit account where the homeowners can borrow money repeatedly. HELOC has higher interest rate but you can borrow repeatedly whenever you need.

In the home equity loan, you are using your house as a collateral to secure a loan to repay back the loan. It usually offers a lower interest rate than the credit card rate. If the interest of your home equity loan is higher, it will be worthwhile to stick to paying your credit card without obtaining the loan.

The interest charges are tax deductible so you can deduct them on your income tax returns to save money on tax payment. Getting a home equity loan to repay your outstanding debts that are accumulated in the credit cards can help you to slightly raise your credit scores. This is because the credit utilization rate about 1/3 of the credit score.

Once you have been approved for the home equity loan, you can make an arrangement with the bank to automatically pay back the balance on the credit card. If your bank can’t do this, you must remember to pay the card once the fund is released.

You should call your credit card company to cancel your credit card even though it may have decrease your credit score. The only downside on this type of loan is that your home will be repossessed if you fail to repay it. Therefore, it is important to develop a discipline if you want to completely repay the loan.

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