5 Reasons to Consolidate Debt with a HELOC
A HELOC or home equity line of credit is a loan secured by your home that provides you with a revolving credit line to use for debt consolidation or any other large expense. With a HELOC, you borrow against the equity you’ve built in your home. The lender you select will determine the amount of equity you are eligible to borrow. Most lenders allow you to borrow about 80% of the current value minus any outstanding liens. Spirit Financial Credit Union enables members to borrow up to 90% of the current value, less any outstanding liens, based on creditworthiness. The lender you select will also determine the rate of interest you pay. Here are five great reasons to consolidate debt with a HELOC.
1. HELOCs can provide a lower interest rate
Since you are using your home as collateral for a home equity line of credit, interest rates are typically much lower than a personal loan or high-rate credit card. While rates vary among lenders, your creditworthiness will also determine the rate you pay. HELOC rates are adjustable, which means they may fluctuate throughout the term of your loan. When searching for the best interest rate, be sure to check your local credit union. Many will offer low rates and other perks. An example of this is Spirit Financial Credit Union’s Home Equity Line of Credit. Spirit’s HELOC offers many other benefits in addition to the low rate, such as no closing costs and no annual fees. As we’ve mentioned above, HELOC rates are often significantly lower than most personal loans, credit cards, and some other loans.
The lower your interest rate when you borrow, the less interest you will pay over the life of the loan. It can be a huge saving when looking to consolidate high-interest credit card debt, loans, or other high-interest debt.
2. Debt consolidation can provide you with one simple monthly payment
Many of us may find ourselves struggling with balancing numerous credit card and other debt payments each month. Consolidation into a HELOC can alleviate the monthly bill juggling act and provide you with just one payment to fit into your budget.
3. A lower monthly payment
Not only will you enjoy going from multiple monthly payments to one single payment when you consolidate debt, but that payment may be significantly lower than the others. If you’re grappling with a tight budget, debt consolidation using a HELOC can help you find the extra cash you need each month to meet your expenses.
4. A HELOC may come with payment flexibility
Most HELOCs come with a term that includes a draw period and a repayment period. For most HELOCS, during the draw period, you can borrow money as you need it. After the draw period ends, a repayment period begins. During this time, you can no longer borrow on the line.
5. Flexibility to use the money when and where you need it
Depending on the equity in your home, you may be able to borrow a higher amount and cover various additional needs. If your equity is higher than your outstanding debt when refinancing higher interest payments, you may be eligible to borrow more to cover additional expenses. This might include educational costs or a home remodel project. Unlike a lump sum loan, you don’t need to draw the funds until you actually need them.
The funds from a HELOC can be used for any purpose, from home improvements to tuition expenses or to consolidate high-interest debt as we discussed above. An important consideration when thinking about a HELOC for debt consolidation is that your home is used as collateral for the loan. You will need to be timely with all of your payments.
If a HELOC sounds like the perfect solution for your debt consolidation needs, begin by comparing lenders. Compare, rates, fees, and payment options. Begin with Spirit Financial Credit Union’s HELOC.
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