Advantages of Paying Off Credit Card Bills With Home Equity
Using Home Equity To Pay Off Credit Card Debt
Many people who are deep into credit card debt think of using their home equity to pay off their loans. This can be either good or bad depending on how good you are at managing money. The three main benefits of doing this are:
1. Reduced rates of interest.
Your home equity account interest rate will probably be at least 4 or more percent less than your credit card interest rate. This will let you keep more of your hard earned money in your pocket.
2. Pay off your loan in a shorter time period.
Since you have a lower rate of interest,, you will be able to liquidate your debt a lot quicker. For instance, let’s say that the annual interest rate on your credit card is twenty percent and you own $5,000. If you manage to pay off the balance in 12 months, you’ll have paid $5,558 total. If, however, you transfer your debt to your 5% home equity loan, you can pay this debt off in just 11 months.
3. You end up with more money in your pocket.
Taking the identical circumstances as above, with the 20% rate of interest, by year’s end you’ll have paid $5,558. but with the lower home equity rate, you’ll only pay $5,138, nearly 9% less. And the bigger the amount of your credit card debt, the more you benefit by transferring your balance.
Should you always transfer your credit card debt to your home equity account? No. But it does help to remember that you always have options in disposing of your debt.
David Hoyer is a freelance writer who writes articles relating to chapter 7 bankruptcy information. For information on chapter 13 bankruptcy explained, bankruptcy student loans, and bankruptcy credit report visit his site.
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