If you've got a wallet full of credit cards, and monthly payments on them that total more than 25% of your monthly income, chances are that you've considered debt consolidation loans or some other means of taming your credit card debt. But did you know that a home equity loan is another way to get money that you need to pay off your creditors, reduce your monthly payments, and get out from under weight of all those monthly payments?
A home equity loan is essentially a second mortgage taken out with your house as collateral. Because loan is secured, you'll have a much more favorable interest rate. And those lower rates will translate to a lower monthly payment overall. You'll wind up with one creditor, one monthly payment, and more money in your pocket each month.
There are some definite advantages to taking out a home equity loan or line of credit to get out of debt, and one very big danger. By trading your unsecured loans (your credit card debts) for a secured loan, you are putting your house on line. Why? Because if you don't make payments, lender has right to take your home from you and sell it in order to collect on loan. But if you've got at least 20% equity in your house, and are certain that you'll be able to meet monthly payments, then taking out a home equity loan to pay off your debts may be a good choice for you.
Once you've decided that a home equity loan is an acceptable risk for you, you'll have a few other decisions to make.
All home equity loans are not created equal! There are two types of loans, and you'll need to decide which one is right for you.
A flat home equity loan is a standard loan for a fixed amount. The amount will be limited by amount of equity you've invested in your house. If you use up entire amount of your loan and need more money, you'll have to apply for another loan.