Using the equity in your home can be a great way to consolidate your debts and get control of your finances. By shifting your debts from several high interest credit cards to one low interest loan, you can save a lot of money and lower the amount of money you are spending to pay off your debt each month. Having only one payment to worry about each month is also a great benefit of consolidating with a home equity loan. While consolidating can be a wonderful idea, there are three important things that you should know before you take out a home equity loan.
You could end up paying more in interest over the life of the loan.
While the interest rate on a home equity loan is much lower than the interest rate on a credit card, if you take a long time, such as 30 years, to pay off your home equity loan that little bit of interest can add up to quite a lot over all of those years. Be wise and take the extra money you save each month and use it to pay off your home equity loan in record time.
You could lose your house.
While it isn’t highly likely, the possibility does exist. A credit card company can’t take your house away from you for missing payments, but a mortgage lender can. If you were to lose your job or endure some financial strains that cause you to miss a payment or two on your home equity loan, you could jeopardize your home.
You may be tempted to use your credit cards.
When you have a zero balance on your credit card statement, you might be tempted to use them more. Just because you no longer owe the credit card company, doesn’t mean you aren’t still paying for your purchases. Don’t make the mistake of filling up your credit card balances again, because then you will have a bunch of high interest debts to pay off on top of your home equity consolidation loan.
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