Tapping Into Your Home's Equity To Pay Off Credit Card Debt
BOSTON (CBS) - Not prudent. Just not prudent. I know the temptation is there. The ads tell you its easy money and why not use some of that equity in the house that is just sitting there ripe for the picking.
Tapping Into Your Home's Equity To Pay Off Credit Card Debt
According to www.Bankrate.com a home equity loan can be found with a 4% interest rate. Depending on your credit score you may even be able to get lower rates.
That's a lot lower than most credit cards are right now. Despite the fact that interest rates are still reasonably low, credit cards have not followed that trend and the average rate is running around 16%.
So if you can get a lower rate why not use the home equity loan to pay off your credit card? Well it might work if all of the stars are aligned in your galaxy and you can promise me the following:
- You are able to pay off the debt quickly
- You will never run up any more debt on your credit card
- Your job is very secure
- You will never become disabled
The key is never running up any more credit card debt once you have paid it off, for once you fall off the wagon here you just begin to dig yourself into a black hole. There have been several studies done on the use of home equity loans and they found when used to pay off credit card debt, within two years the consumer was back in credit card debt and had dug themselves in deeper.
When using a home equity loan you are using your home as collateral. If you default on that loan you could lose your home.
A Home Equity loan is long-term debt. So that wonderful vacation or the new shoes that you bought this fall could take 15 or more years to pay off. In 15 years I can guarantee that the shoes are no longer in your closet.
Money Conference Alert!!
On October 11th I will be the key note speaker at The Money Conference which is a FREE one-day event presented by The Office of Massachusetts State Treasury. It will be held at UMASS Boston and the first 500 registrants will get a free copy of my newest book, Money, Your Personal Finance Guide.
There will be afternoon classes on everything from budgeting to buying a house. The Financial Planning Association of Boston will have volunteer financial planners there to help answer questions. You can set up a meeting with a Money Mentor when you register. If you have questions about the conference, contact Sheila O'Loughlin of the State Treasury at (617) 367-6900 ext 615.
