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Q&A: Should We Take a Home Equity Loan to Pay Off Our Credit Cards?


Dear Rachel,

My husband and I have quite a bit of credit card debt. I would like to take a home equity loan and get the credit cards paid off, but my husband disagrees. He feels like credit card debt is just another of those facts of life that everyone has to deal with.

Thank You - Barbara


Dear Barbara,

I am not a huge fan of borrowing money against the equity in my home for any reason. The roof over your head is the most important thing most people have and you do not want to put that in jeopardy.. certainly not to pay off unsecured credit card debt!

When you purchased your home.. like most responsible people, you purchased a home with a payment that was comfortable for you, taking into consideration your financial budget. If you take out a home equity loan.. your monthly obligation will be increased.

What if something were to happen whereby the new increased payment became a burden.. perhaps to the point where you were no longer able to make the payments. You could wind up losing your home, all because you were eager to be out of credit card debt.

I have even known of cases where people took out a home equity loan and paid off their credit card debt. Once their credit cards had a zero balance, they began using them occasionally.. with the perfectly good intentions of being more responsible this time around and paying off the balances as soon as the statements arrived.

Over time.. there were birthdays and Christmas, as well as the occasional emergency, and it became more and more difficult to pay the bills in full each month. Once again.. eager to be rid of the high interest credit card debt, additional money was taken from their home equity to once again pay off the credit card bills.

Then they suffered some unexpected life circumstances and they found themselves experiencing financial difficulties. They might have been able to keep their home had it not been for the thousands of dollars owed on the home equity loan, in addition to the original mortgage.

I am afraid I have to agree with your husband on this issue. I know it is frustrating to be wasting so much money on credit card interest.. but the credit card companies will just have to wait. They will get their money when you have it.

There are other strategies to get your credit cards paid off more quickly:

1) Stop using your credit cards
2)
Check out some of the 0% balance transfer offers

Transferring your higher interest balances to a card with zero interest will mean more of your payment each month goes toward reducing the principal.

Once you have paid off one of your credit cards.. you will likely receive a balance transfer offer from that bank. Take advantage of that offer to pay off another of your higher interest credit cards.

By always keeping your balances on only the credit cards offering the lowest interest rate you will find you are able to pay down your balances much more quickly.

 
Ask Rachel

Article Courtesy of: CreditCardApprovalCenter.com


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