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Consolidate Your Debt with a Home Equity Loan and Improve Your Credit Score

Using a Home Equity Loan to Consolidate Your Debt

As we’ve all figured out, there are no miracle solutions to eliminating your debt; however, there are some practical and smart solutions. One of the more popular debt elimination methods that have risen involves using a home equity loan. Home equity loans are loans determined by your home’s current value and how much money you still owe on the home. Since home equity loans have fairly low interest rates, many people have begun using them to pay off their current debt, especially credit card debt. By paying off all your debt with a home equity loan, you’re basically consolidating it - now you only have to worry about making one payment each month. This simple method can also help improve your credit score over time, as you’ll have less overall debt. Here are some other reasons why you should consider consolidating your debt with a home equity loan.

Why You Should Consolidate Your Debt with a Home Equity Loan

  • If your credit card is maxed out or close to its limit, consolidating the debt with your home equity loan will allow you to pay off the card immediately, which could boost your credit score dramatically. You can then close the credit card for good or keep it for emergencies.
  • Your interest rate with a home equity loan is usually much smaller than the interest rates on credit cards. This means you’ll owe significantly less money over time and can make lower monthly payments.
  • By consolidating your debt and lowering your payment, you’ll also lower your debt to income ratio. Debt to income ratio is an important aspect in determining your credit score and could allow you to get approved for new lines of credit.
  • While you could make minimum monthly payments on your credit card for a lifetime before getting it paid off, your home equity loan is usually set to be paid off in just five years.

Additional Resources

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