DON’T USE HOME EQUITY LOANS TO PAY OFF YOUR CREDIT CARDS!
I have to admit, that I am a little behind the times technologically. I still have basic cable at home and I don’t have a DVR. So while many Americans can simply fast forward through television commercials, I actually watch them. One common theme in television commercials these days is the benefits of taking a home equity loan to pay down your credit cards. But sometimes taking home equity loans to pay off credit card debt is a very bad idea.
When considering whether or not to take out a home equity loan, I suggest you crunch the numbers and consider your situation in this way. If you are not struggling to make your credit card payments each month, but would like to pay off your credit card balances in order to get rid of those high interest loans, then a home equity loan may be a good idea. But if you are struggling to make the minimum payment on your credit cards, then you will probably struggle to make your second mortgage payment after receiving a home equity loan and in that situation a home equity loan could end up costing you your house.
When you take out a home equity loan to pay off your credit cards, you are reducing your interest rate but you are also turning an unsecured debt into a secured debt. When you default on a credit card debt, you risk being sued. However many people that default on their credit cards never get sued, and after four years the statute of limitations will bar the credit card company from recovering on the debt. Even if you get sued most of your property is probably exempt from being taken by your creditors, and you may be able to stop the lawsuit by filing bankruptcy. When you take out a home equity loan to pay off your credit cards, you are turning your unsecured debt into secured debt. Now if you can’t make your payments and you default on the loan you will lose your house.
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