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Advantages of Paying Off Credit Card Bills With Home Equity

Many people who are deep into credit card debt think of using their home equity to pay off their loans. This can be either good or bad depending on how good you are at managing money. The three main benefits of doing this are:

1. Reduced interest rates.

Your home equity account interest rate will probably be at least 4 or more percent less than your credit card interest rate. This lets you keep more of your money in your pocket.

2. Pay off loan faster.

Since you have a lower rate of interest,, you will be able to liquidate your debt a lot quicker. For instance, let’s say that the annual interest rate on your credit card is twenty percent and you own $5,000. If you manage to pay off the balance in 12 months, you’ll have paid $5,558 total. If, however, you transfer your debt to your 5% home equity loan, you can pay this debt off in just 11 months.

3. You wind up paying less money.

Taking the identical circumstances as above, with the 20% rate of interest, by year’s end you’ll have paid out $5,558. With the lower home equity interest rate of 5% , however, you’ll end up paying only $5,138 - a savings of nearly 9%. If your credit card debt is bigger or the disparity in interest rates rider, your savings will be even more.

Should you always transfer your credit card debt to your home equity account? There’s no hard and fast rule. The important thing is to simply take stock of all the options you have when paying off a debt.

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