Paying Off Your Credit Card Balances With Your Home Equity

January 25th, 2010 | by real |

Advantages of Paying Off Credit Card Bills With Home Equity

If you owe a lot of money on your credit card, you may be thinking of using your home equity to pay off your 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 rates of interest.

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 pay the balance off in 12 months, you’ll pay approximately $5,558 total. If, you transfer your debt to your 5% home equity loan, you can pay this debt off in only 11 months.

3. You simply end up paying less money.

Taking the identical circumstances as above, with the 20% rate of interest, by year’s end you’ll have paid $5,558. but with the lower home equity rate, you’ll only pay $5,138, nearly 9% less. And the bigger the amount of your credit card debt, the more you benefit by transferring your balance.

That doesn’t mean that you should immediately transfer your credit card balances to your equity account. In some cases, this would be a disastrous idea. The important thing is to simply take stock of all the options you have when paying off a debt.

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