Debt Consolidation with a HELOC Equity Line

Although we have discussed how you can use a HELOC Equity facility to amplify the equity in your home, one of the other most common purposes of a home equity line of credit is to consolidate bills. This is often an excellent method of reducing your monthly debt service payments if you have a number of outstanding debts that carry high interest rates. Let’s take a look at an example. First, let’s assume that you racked up $75,000 in credit card debt (which is an unsecured debt) that carries an interest rate of 19% per year. If you have substantial equity in your home then you can receive a line equal to $75,000 with an interest rate of 6% (assuming that you have the appropriate collateral and credit scores in place). As such, you will reduce your monthly payments on your outstanding debts by more than 2/3. Additionally, chances are that consolidating your debts via a HELOC Equity line of credit will drastically increase your credit score.

 

Most credit scoring agencies look upon large balances on credit cards as a large negative. This is because the interest rates are higher, the risks relating to default are much higher, and it shows a general recklessness when it comes to your spending habits. Consumer loans (such as credit cards) are looked at differently than home loans or mortgage credit facilities (such as residential mortgages and HELOCs). As such, by reducing your consumer loan debt down to nothing