Credit Card Debt

Home Equity Loans

Because a house is conceivably a consumer's largest asset, many homeowners use their home equity to get a debt consolidation loan. Refinancing your home gives you a lump sum of money (a home equity loan) where your home serves as collateral. Similarly, a home equity line is a form of revolving credit in which your home also serves as collateral. These types of debt consolidation loans should only for major items such as education or home improvements, and not for day-to-day expenses or credit card debt.

Many lenders offer home equity loans; however, due to the recent economic downturn many consumers find that it’s harder to qualify. Usually lenders require a home owner have at least 20% or more equity in their home to apply for this type of credit and/or loan. Lenders will consider other factors such as:

• What is your debt to income ratio?
• How much do you want to borrow?
• How much home equity you have?
• Have you paid your bills on time?

Before making the decision to pay off your debts by taking out a home equity loan you should weigh carefully the risks against the benefits. Consolidated Credit Counseling Services offers a Debt Management Program that may be able to dissolve your debt in 3 to 5 years, whereas you might be paying a home equity loan off for 15 years or more. Remember, failure to repay this type of debt consolidation loan could mean the loss of your home.

Home Equity Loan Costs

Many of the costs in arranging a home equity loan may resemble the charges you pay when you buy a home. For example:

There may be a fee for a property assessment (appraising the value of your home). An application fee, which may not be refundable if you are turned down for credit. Initial charges, such as one or more points (one point equals one percent of the credit limit). Other closing costs, including fees for attorneys, title search, mortgage preparation and filing, property, and title insurance, as well as taxes. Some plans even impose yearly membership or maintenance fees and transaction fees every time you draw on the credit line. You could find yourself paying hundreds of dollars to establish the plan. If you draw only a small sum of money against your credit line, charges and closing costs could substantially increase the cost of the funds borrowed.

Review Other Debt Solutions Before Using Home Equity Loan

No one should have to risk their home to pay for credit card debt. There are other debt relief options. Call 1-800-320-9929 to speak with a certified credit counselor at Consolidated Credit Counseling Services. They can review your financial situation, advise you of your debt relief options, and help you find a debt solution.