With so many of looking to consolidate your bills, the thought of getting a home equity loan to pay everything off can become quite tempting. After all, having to make only one payment per month sure is much easier than paying on several different bills. In addition, many home equity loans offer some pretty attractive interest rates, making the idea of consolidating bills with an equity loan even more enticing.
Personally, I think it is a bad idea to use an equity loan in order to consolidate your bills – particularly if you are looking to consolidate a bunch of credit card bills. Sure, you might save some money because the interest rate is lower. But, using an equity loan to consolidate your bills puts your home equity and your home, for that matter, at risk. Remember, when you receive an equity loan, you are putting your house up for collateral. This means the bank can take your house from you in order to pay off your debt if you fail to repay the loan.
Now, I’m not necessarily saying that you should sit back and incur high interest rates on multiple credit cards. Rather, it’s probably a better idea to consolidate your card balances on a single credit card with a low interest rate, transferring all of your credit card debt onto just that one card. If you give your credit card company a call, you are likely to find at least one that is willing to lower your interest rate and to possibly increase your credit line if necessary to transfer all of your debt. If not, you might want to consider applying for a new card with a low interest rate.
One of the great things about credit cards is that they represent unsecured debt. In other words, you don’t have to put anything up for collateral. So, if you fall on hard times and are unable to make regular payments on your credit card, your credit rating will certainly suffer. But you won’t be at risk of losing your home.
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