Ask:
Has anyone used a home equity loan to consolidate their debt? DH and I have been living on a money only basis (envelope system) for about 6 months and do not have any problems paying everything. However, if there is a way to get the interest rates lower so that more can go to getting rid of the debt I would like to do that. We are thinking about a home equity loan or something like that. I would love to know your experience etc. If not a home equit loan, what other options would you recommend?
amy
Answer:
We have home equity loan. The only reason we got it was because when we bought our new house our old house hadn't sold yet. We could not afford two mortgage payments, so we could use the equity in our old house to pay for the new one. Don't ask, it even confuses me!! Anyway, when the house sold, it also paid off our equity loan, BUT we left it open for emergencies.
I'd never do that again. It is just all too easy to use it for non-emergency spending. For awhile we were 'robbing Peter to pay Paul' and we ended up putting everyday expenses on it (like Taxes, etc.) and believe it or not, just a chunk here and there over the course of two years we now have $17K on it. Now this is not a 2nd mortgage ~ however it means that if we sold our house we would have $17K less profit to use for another house. So we are working at chipping away at it.
I'm not sure about consolodating you debts. we've never had to do that, so I'm sorry I'm not much help on that one. But as for the Line of credit, it is something I personally would not do again.
Answer:
Not a good option, if you can afford it. First, you are putting your house on the line. What if something came up and you couldn't pay it?
Also, yes, the interest rate is lower, but it's for a much longer time, so in the long run, the interest will be much, much, much more. There are online calculators to help you figure exactly how much.
We took out one years ago to put shutters on our house and landscape the back yard. That part I don't regret at all. However, we also paid off some debt with it - that part I do regret. One of these was a timeshare at 16% interest, that we paid off due to the high interest. (the term was the same). I think we've lost it anyway, because after having kids and staying home, we couldn't keep up w/the annual maintenance of over $600 a year! So look at each item and do the math - will it be worth it in the long run?
Answer:
I agree with the others. We had a home equity loan once and I always regretted it. You are just robbing Peter to pay Paul. The bank could also take your house if for some reason you can't pay the bill.
Answer:
I agree with not doing the home equity. We thought it would be a good idea for home improvements but it gets out of hand. There are so many projects to do at our house but we have decided to pay for them as we go instead of financing them from now on. We consolidated our home equity with the first mortgage for a lower first mortgage rate. We closed the home equity.
Answer:
Thought of another reason not to do it. If for some reason you have to move and sell your house you have to sell it for enough to cover the cost of the home equity loan plus the mortgage or else you have to find another way to pay them both off.
Answer:
I agree with the previous posts. By doing this, you are turning a short-term loan into a long-term loan. Also, if the housing market takes a dip and you have to sell your house, it could put you in a bad situation having to pay off both loans and possibly not enough money to cover both.
Answer:
I agree with the others - and from personal experience - don't do it. You are putting your house on the line, and with the housing market in a downward cycle, it is a risk. Negotiate with your credit card companies for lower rates and just bite the bullet and pay them off, without endangering your house.
Answer:
Thanks for all the input! I am leaning toward just closing the accounts and trying to negotiate a lower interest rate for payoff. DH wants to find a 0% balance transfer card and move everything there. I just get tired of all the moving around and having to keep up with when interest starts, finding a new card, etc. etc. etc.
Thanks again - we will likely avoid the home equity loan!
amy