Settling Credit Card Debt with Home Equity Loans
Is Clearing Unpaid Credit Card Debt with a Homeowner Loan Sensible?
Oct 7, 2009
The high rate of interest makes settling credit card debt with a cheap secured personal loan an attractive proposition. Money owed on a charge card is referred to as revolving debt because there is no defined term to the credit agreement. This means that the debt could last indefinitely.
The Importance of Settling Credit Card Debt
- The median rate of interest on new purchases was between 6% and 22.75%.
- The average APR on new purchases was 13.54%.
- Fixed-rate credit cards attract a median rate of interest of 11.82%.
*The above statistics are from a Consumer Action survey of 41 credit card providers.
Establishing Affordability with a Home Equity Loan
Although a great deal will depend upon the borrower's FICO credit score, cheap secured personal loans are available from as little as 8% APR. Putting multiple unsecured liabilities under one roof will reduce the amount of income that goes towards servicing debt each month.
Simplify Family Finances with a Cheap Secured Personal Loan
Clearing multiple forms of unpaid credit card debt with a homeowner loan not only simplifies family finances, it also decreases the likelihood of a late payment charge. This additional disposable income will help to cover other essential household bills.
Settling Credit Card Debt Over an Extended Term
Whilst revolving debt is relatively easy to service, it can continue for in excess of 40 years. A cheap secured personal loan will allow the borrower to repay debt at an affordable rate over a term that can be as long as the mortgage.
The Dangers of Home Equity Loans
- Extending the term of a loan will almost certainly increase the cumulative amount of interest that is paid. Always try to keep the borrowing term as short as realistically possible.
- Many individuals borrow more money than they need. This isn't just used for settling credit card debt, it regularly finances expensive cars and foreign holidays.
- The interest rate is normally variable which means that monthly repayments can change.
- A homeowner loan is secured on property so failing to keep-up with repayments could lead to foreclosure. Remember that a Debt Management Plan or debt settlement program are also available for the purpose for reducing unsecured debt.
A home equity loan is very useful for settling credit card debt, but it is important to be aware of the associated dangers of turning unsecured into secured debt. If a borrower chooses to proceed with this option, it is important to close down old accounts and/or reduce credit limits.
Sources
creditcards.com
Disclaimer: This article in no way attempts to give legal or tax advice. One should consult a licensed attorney, tax advisor, or other qualified professional before proceeding.
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