Resourceful-Mom

Home Equity Loan and HELOC Suggestions

Today, I ran across an article written by the authors of Debt Be Gone Today, a site packed with helpful tips for debt freedom.  The article “Benefits of Taking a Home Equity Loan” brought a couple of things to mind that I thought might be beneficial if considering using the equity in your home to lighten your financial load.  These suggestions would apply if you are interested in either a Home Equity Loan or a Home Equity Line of Credit (HELOC).

Below, you’ll find the benefits from the Debt Be Gone Today article with my suggestions in italics.

Benefit #1 – Pay Off Loans and Lower Debt  – One of the main benefits that can be enjoyed if you take out a home equity loan is the ability to pay off your loans or credit card balances and lower your debt. Many homeowners are over their head in debt today, and getting a home equity loan can often be the key to finally making their way out for good.

• Suggestion #1 – After paying off loans and credit card balances, close you accounts.  For any loans you cannot pay in full, pay what you can and then lower your credit limit.  Leaving $0 balance credit around is a recipe for disaster.  If you can’t bring yourself to close these accounts, at the very least, make them less accessible.

Benefit #2 – Benefit From No Closing Costs – You can often find home equity loans that don’t have any closing costs either, which can be a huge benefit. If you want to use your loan to pay off debt, the last thing you want to do is to have to worry about coming up with extra money for closing costs when you are already tight on money, so loans with no closing costs can be a real benefit.

• Suggestion #2 – Use any money saved from not having to pay for closing costs to start your emergency fund.  Without credit cards or other loans at your disposal, you will need to be prepared for an emergency.  Gather Little by Little has an article worth reading about the importance of having an emergency fund.
  

Benefit #3 – Extend the Repayment Terms – Many of the home equity loans available also offer extended repayment terms as well, which means that you have long[er] to pay off the loan. When you are using the loan to pay of credit card debt and other debts, having longer to pay off the loan can be a huge help.

• Suggestion #3 – If you extend the repayment terms of your loan, please consider not incurring any additional debt during that time period as well.  Otherwise, you could easily end up in more debt and with your home in foreclosure.

Benefit #4 – Lower Interest Rates – Most of the time you’ll find that the interest rates on a home equity loan are a lot lower than most other loans or even credit cards. Because you can get these low interest rates, it makes it worth your while to get a home equity loan so you can pay off high interest debt. You’ll get out of debt sooner and you’ll also save a huge amount of money on interest as well.

• Suggestion #4 – Lower interest rates normally means a lower monthly payment.  Use the extra money to first complete your emergency fund and later to pay extra towards your Home Equity Loan.  Your ultimate goal is debt freedom.  Pay off all debt as soon as possible so you can start saving for your future.

As a single mother, your debt may be a result of unexpected emergencies.  Creating a budget and saving for emergencies will allow you to get out of debt.  Be careful using debt to get out of debt as you are, many times, only treating the symptom not the problem.