Many people find themselves – through a series of bad habits spread out over years and years – sacked with thousands, or even tens of thousands of dollars of credit card debt and feel like they have no way out of this dilemma. When it comes to paying down debt, the hardest part is sticking to the plan and making sure you are doing your part. Sometimes, however, the debt gets too far out of control and larger measures must be taken to free oneself from the burden. This is where the idea of home equity loans come in and they can make a great debt solution for those who qualify.
Who Qualifies For A Home Equity Loan?
Obviously, you must currently own a home in order to qualify for a home equity line of credit. Only specific types of homeowners will qualify but also important, only certain types of homeowners should consider this approach. If you have a small amount of debt (< $10,000), then a budgetary approach is in order. If you are already underwater on your current mortgage, then a home equity loan is not a good idea (and most likely unattainable through the lender in the first place). Otherwise, as long as you have decent credit and a home, you will most likely qualify for a home equity loan that can be used to pay off large amounts of debt.
What Benefits Come With A Home Equity Loan?
The first and most immediate benefit of using a home equity loan to pay off credit card debt is the instant savings you will be enjoying by avoiding costly interest payments. In nearly all cases (check with your lender to be sure), home equity loans charge a much lower interest rate, leading to you saving money each month by paying on the lower-rate equity loan as compared to the high-interest credit card debt. Secondly, paying off the home equity loan in a timely and prudent manner will build your credit over time, which is great for anyone whose credit score has suffered under the burden of big debt.
How Much Can I Borrow?
Never borrow more than you actually need. You don’t “need” a couple extra thousand bucks to get a new TV or to go on vacation. An average amount is typically calculated by taking 75% of the home’s appraised value and subtracting the amount currently owed on it. For example, if your home is worth $100,000 and you owe $45,000 on it, you would take 75% of the appraised value ($75,000) and subtract the amount owed ($45,000) to determine what amount you are eligible to borrow ($30,000).