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Debt Consolidation Financing - The Pros and Cons Of Home Equity Loans

Aug 18, 2007
Obtaining a home equity loan is a general process of refinancing debt and it has many advantages, nonetheless there are a few potential issues that are potentially worth considering before taking the plunge.

Firstly, what is a home equity loan?

The general idea is easy, you acquire a line of credit, secured through the equity in your home, that has accumulated over time from regular monthly repayments on the original home loan and from any increase in the properties worth, a range of homeowners may take out a HELOC (Home Equity Line of Credit), as they are known in order to utilize the cash for the intended purpose of financing home improvements, this purpose gave the loan its original name, however because of tax implications and other issues, the HELOC evolved to serve other needs.

Interest paid on a large majority of different kinds of debt is not tax deductible, notwithstanding interest paid on a home loan is, thus interest paid on a HELOC can really be a form of less costly debt, suppose, you've a 11% HELOC for up to $15,000, with most HELOC's you don't in reality borrow the entire total amount at the same time, you draw down on it, as you would a credit card, as needed and desired, so, you've considerable gains, you can borrow only what you need keeping the payments and the interest owed as little as possible and you are able to reduce your taxes through a percentage of the interest paid per financial year.

If you had a credit card that charged 11% APR the big advantage is crystal clear, you pay a net lower amount of dollars to the lender following using a HELOC instead of a credit card to finance your purchases, however like any loan, it's essential not to forget that a home equity loan is just that, a loan or debt. If one of your big issues is the inability to exercise the will to stop from spending beyond your means, you have just found another means to feed your addiction, as a result, a home equity loan may actually make your fundamental problems worse, instead of helping.

Notwithstanding, if you have formed a commitment to manage your debt and are seeking ways to lower your total bills, a home equity loan is often a practical method to utilize.

One crucial exercise is to in reality calculate how much money you would be spending per month and over the life of the debt in one outcome versus the other, there are debt calculators readily available on-line to assist you achieve just that, often you'll have to weigh up whether you prefer to spend more dollars over the life of the debt as opposed to having a smaller monthly repayment with a higher total amount of interest, the better calculators / tools may assist you run by both strategies, changing amounts to help you weigh the pros and cons of using a home equity loan in your debt consolidation program.
About the Author
Ian Wilkie is a published expert author of many Debt Free articles and owner of - My Debt Consolidation Solution your one-stop online resource for Debt Consolidation Financing.
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