Home Equity to Pay Credit Card Debt, Bad Idea!
By: Pat Hicks
I couldn’t help but notice there have been a few articles
circulating around espousing the merits of taking a home equity
loan out to pay off your high interest credit card debt or
other types of unsecured debt. Did you look to see that they
are written by mortgage brokers?Here is my problem with consumers
taking out these types of loans. One, they are attempting
to borrow their way out of debt, which is impossible and overall,
just a terrible idea. Secondly, they are borrowing from what
is essentially the savings account of their home equity. For
most people, this is their single biggest investment and financial
asset. So, this loan to pay off unsecured debt is secured
by the roof over their heads which costs more each month when
a loan is taken out against it.
Here is a worst case scenario that is all too common you
might envision before taking out one of these types of loans.
You get a bigger house payment with the borrowed money, your
credit cards get paid off but you don’t cut them up.
Six months to a year later, you have them maxed out again
but now you get laid off. The cards may never be paid and
you have all the credit problems associated with being unable
to pay them along with a higher mortgage payment. If you can’t
make the payment on it, you are in more danger of losing your
home than you were before you took it out. But most tragically,
you have nothing to show for the thousands more you now owe
on your home. Thousands you may have spent years paying down
from the original debt.
Even in the best case scenario, you are now years longer
away from paying the house off and if you pay off the cards
and cut them up, you have less equity in your home in exchange
for items you bought with high interest credit cards. In my
opinion, it is a bad trade and only the credit card companies
and the companies that originate the home equity loans win.
You get stuck with a higher house payment, less money in your
equity “savings account” and unsecured creditors
get paid with funds taken from your most important asset.
What do you really have to show for borrowing more money to
pay off money you effectively borrowed at 18% to 29%?
What is the alternative? Negotiate with the credit card companies;
that’s what! There are ways to make the creditors and
collections agencies stop harassing you instantly and in some
cases they are trying to collect a debt from you that you
no longer owe. Remember, you have the one thing they want:
MONEY. And even if you don’t have much or any, you still
can get them to lower the interest rate, maybe even to 0%
or knock off the late fees and get the debt to a manageable
level. In addition, you have the ability to dictate your terms
to them!
If you listen to the collectors, they will have you terrified
into thinking the only options are for you to get a loan to
pay them or to declare bankruptcy because they will have you
convinced they will automatically get a judgment against you
and ruin your credit. While a judgment certainly is a possibility
and I don’t take the threat of it lightly, it must be
done through the courts and you do have options to stop a
judgment. When you can’t make your house payments it
is much harder to stop a foreclosure. Additionally, your credit
can be addressed with the credit reporting agencies and is
not necessarily going to cause you problems for seven years
as they would have you believe.
So, take the time to think through all the ramifications
of a home equity loan to pay off credit cards and go to the
trouble to educate yourself on some of your rights along with
the protections offered to consumers through federal laws
and statutes. You can get out from under the crushing load
of credit card debt with a fresh start, without risking your
home.
Believe this! You can overcome or solve or successfully live
with any problem you will ever have to face including credit
card debt. If you are committed to making a plan, setting
some goals, working your plan, and doing the things that are
proven to work, you will end your credit card nightmare without
worrying about a foreclosure nightmare.
About Author: Pat Hicks is the author of 'The Negotiate Your
Way to Financial Freedom from Credit Card Debt Ebook', located
at http://www.Iwantafreecrediterport.com,
a web site providing competitive priced credit reports and
scores with no tricks or misleading advertising.
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