Is it ok to get a home equity line of credit to pay off my debts???

Question

At the same time, what's better a line of credit or home loan??

Answer 1

There are advantages and disadvantages:

Advantages
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The HELOC will charge you less interest.

Disadvantages
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The HELOC is secured against your home, so now if you default or go bankrupt, you lose your house. That probably isn't the case if you default on your credit cards - your home would likely be protected by the judge's payment plan or by bankruptcy.

It's very tempting to just rack up the cards again, in which case, you are in the same place you are now with the credit cards and your home is at risk.

Overall, I suggest using a HELOC to pay off credit cards if and only if:
1) You are confident you will not be declaring bankruptcy, under any circumstances within 5 years.
2) You are confident that you will use you will be able to pay the full balance your credit cards at the end of the month, every month in the future. You are confident you won't do this again.

If either of those statements are untrue, I wouldn't want to put my home at risk.

-->Adam

Answer 2

First of all, understand that you're not eliminating your debt, you're just moving it somewhere else. However, moving it someplace with a low interest rate (like a home loan or line of credit) can be very much to your advantage. Just remember that if you don't pay it off, they can take your house. You will also pay a fee, so if your other debt is too small, the fee will cancel out your interest savings.

Choosing between a line of credit or a fixed loan depends on your situation. With a line of credit, the interest rate can be a little higher than a fixed loan (but still way lower than your credit card). You get approved for a maximum borrowing amount, but you don't owe anything until you start taking the money out, which you can do in large or small chunks as you see fit. Then you make monthly payments on whatever amount you've borrowed so far. This can be better if you don't know in advance exactly how much you want to borrow, or if you want to use the money for several things spread out over time.

With a fixed loan, you get the whole loan amount all at once, and immediately start making payments on that whole amount. After that, you can't borrow more without taking out a whole new loan. However, you can get a better interest rate this way than with a line of credit. This is usually better if you know in advance how much you want to borrow, and want to use it all at once (or use some of it and invest the rest until later).

Answer 3

Don't take out a home equity loan to pay off credit cards you will risk your home if you cannot pay. I took out a loan 3 years ago at 10 years interest up front with a variable rate. My payments were $75 a month the first two months then slowly crept up, I'm now paying $134/month and it's only interest! Don't risk your home.

Answer 4

Basically he has negative equity. This results because of property values constantly changing. For a while, property values were up and rates were down. He basically had his house appraised, got the loan approved, and now his value has dropped. So he owes more on the house than it's worth. In order to sell the house, he has to come up with the rest of the money some how. I know you're probably thinking that there is no way and maybe there isn't. But this kind of thing happends when you are borrowing up to 100% of the LTV (loan to value) meaning you borrowed as much as the house was worth at that time.

Answer 5

It's OK, provided that you don't go back into debt again. If you pay off all your debts, but then rack more debt back up... well... then you have an equity loan/lline PLUS all that debt.

I prefer a line vs. a loan becasue then you can control how much you take out and when.

Answer 6

if you're talking about credit card debt, you should consider one of those debt consolidation programs. my mom just did it and it really helped her. I don't know if you want to incur new debt to pay off old debt, especially when it means putting your house on the line. you may have to live cheap for a couple of years, but that's the price you pay for running up debt.

Answer 7

yes, getting a home equity lind of credit to pay off bills in fine. Just make sure you can pay this monthly bills.

Answer 8

home loan would likely be less interest. Line of credit is generally high interest.

Answer 9

How are you going to pay the loan if you can't pay your debts??? You believe in yourslef and your ability to pay things enough to risk loosing your home??