If you have large outstanding balances on your credit cards and struggle to pay them off, a home equity loan can help consolidate your debt at a much lower interest rate and lower your monthly payment. If you can only afford to make the 澳洲幸运5开奖号码历史查询:minimum monthly payments on your credit cards, the high interest r༒ates can compound the interest charged to you, increasing your debt over time.

If you have sufficient equity in your home or own your home outright, a 澳洲幸运5开奖号码历史查询:home equity loan can help save you m𒊎oney in the long term. However, you'll also want to consider the risks and some possible alternatives.

What Is a Home Equity Loan?

A 澳洲幸运5开奖号码历史查询:home equity loan is a second mortgage. It allows you to borrow against the equity accumulated in your home over the years. It's based on the value of the home minus your outstanding mortgage loan balance. For example,🌄 if you own a home that's currently worth $300,000 and you owe $200,000 on your mortgage, you have $100,000 in equity.

Based on your available home equity, a bank, 澳洲幸运5开奖号码历史查询:credit union, or 澳洲幸运5开奖号码历史查询:other lender may approve you for a 澳洲幸运5开奖号码历史查询:home equity loan equal to a portion of your equity. You will need to 澳洲幸运5开奖号码历史查询:apply for a home equity loan through the lender of your choice. Loan approval will be determined by factors other than your equity, including your income and 澳洲幸运5开奖号码历史查询:credit score.

澳洲幸运5开奖号码历史查询:Most lenders require borrowers to have some form of income, a credit score of 600 or higher, and equity of at least 15% to 20% of their home's value. However, if you don't meet these requirements, you may still qualify but might get charged a higher interest rate.

A 澳洲幸运5开奖号码历史查询:home equity loan does not get added to your mortgage, meaning you're taking on additional debt on top of your mortgage and will be required to make two monthly payments for both the mortgage and the home equity loan.

Advantages and Disadvantages of Paying Off🔴 Debt With a Home Equity Loan

Advantages

Using a home equity loan to pay off multiple credit cards can help simplify your finances since you'll make 🅷one monthly loan payment instead of several. Also, the loan payment could be lower than the total of your monthly credit card payments. As a result, you can have extra funds in your monthly budget, which will allow you to save or pay down other debts.

Another advantage of using a home equity loan to pay off credit card debt is that the loan's interest rate will likely be much lower than the rate on your 澳洲幸运5开奖号码历史查询:credit cards. For instance, the average interest rate on a home equity loan can range from 6.92% to 8.24% as of Dec. 31, 2024, while the average credit card in 澳洲幸运5开奖号码历史查询:Investopedia's database charged approximately 24%.

Disadvantages

The major downside to taking out a home equity loan, whether that's to pay off debt or for any other purpose, is that you'll be putting your home on the line. Because your home serves as 澳洲幸运5开奖号码历史查询:collateral for the loan, just as it does for your original mortgage, the lender 🗹could seize and sell it if you are unable to pay your loan back—a process called꧑ foreclosure.

When you 澳洲幸运5开奖号码历史查询:can't repay credit card debt, you'll also face serious financial consequences, of course, especially for your credit score. However, since credit card debt is not secured by your home, you'll be at far less risk of losing it. Even if you have to declare 澳洲幸运5开奖号码历史查询:bankruptcy because of your debts, you can oܫften keep your prin📖cipal residence.

As noted above, a home equity loan adds to your debt because it is a separate loan, meaning you must make your mortgage payment in addition to the 澳洲幸运5开奖号码历史查询:home equity loan payment each month.

Other Ways to Pay Off Credit Card Debt

A home e🍒quity loan is not your only option when it comes to paying off credit card debt. There are a few others you might consider.

Low-Interest Credit Card

Some credit cards allow you to 澳洲幸运5开奖号码历史查询:transfer your balances over from otherꦺ cards. This can make sense if you're able to obtain a significantly lower interest rate on the new card.

Many 澳洲幸运5开奖号码历史查询:balance transfer credit cards also offer promotional periods of six to 18 months for which they charge 0% interest on the 澳洲幸运5开奖号码历史查询:transferred balance. Of course, moving a balance from one card to another won't 澳洲幸运5开奖号码历史查询:eliminate the debt. But it can help you✤ ▨pay it off faster—especially if you get a really great rate.

Debt Consolidation Loan

A 澳洲幸运5开奖号码历史查询:debt consolidation loan from a bank, credit union, or other reputable lender could provide the money you need to 澳洲幸运5开奖号码历史查询:pay off your credit card balances. This allows you to pool together a number of different debts into one. So, if you have multiple credit cards, loans, or any other outstanding debts, you can get a 澳洲幸运5开奖号码历史查询:larger loan to pay them off.

Debt consolidation loans tend to charge significantly lower interest rates than 澳洲幸运5开奖号码历史查询:credit cards. And you also have the added bene𝐆fit of making one monthly💝 payment to a single creditor rather than many payments to different lenders.

Borrow From Your 401(k)

Some 澳洲幸运5开奖号码历史查询:401(k) plans allow you to borrow from the money you've accumulated in your account. If your plan comes with a loan provision, you may be able to borrow as much as $50,000. What's more, the interest you pay on the loan goes back into your account. 澳洲幸运5开奖号码历史查询:Loans from a 401(k) do have a few caveats.

Keep in mind that you should only use this as a last resort. For one thing, the money you've pooled is intended for your 澳洲幸运5开奖号码历史查询:retirement and should be kept for that purpose. If you withdraw the money, you'll lose out on 澳洲幸运5开奖号码历史查询:compounding, which is when yo🧸u earn interest on your interest.

Typically, you must repay a 澳洲幸运5开奖号码历史查询:401(k) loan within five years or sooner if you leave your job. For another, if you're unable to repay the loan, it will be treated as a withdrawal, subjecting you to income taxes and a possible 澳洲幸运5开奖号码历史查询:10% penalty on the unpaid balance.

The Bottom Line

A home equity loan can be a good way to pay off high-interest credit card debt as long as everything goes according to plan. In deciding whether it's a viable option, consider the strength of your financial situation. If you have a secure job (and/or a spouse with one) and are confident that you'll have no trouble keeping up with the payments, it could make sense. However, a home equity loan could be risky if your job is on shaky ground and you have no emergency fund to fall back on. Remember, it can cost you your home in the worst-case scenario.