Pros/Cons to Home Equity Loan to Consolidate debt

[Texan55]

Looking at this option to pay off some CC and other small debt...are there any real draw backs to it?

[Throwin Darts]

I'd ask myself how I accumulated the other debt to begin with and if I'm comfortable putting up my home as collateral and risk foreclosure if I can't pay. I'd also make dang sure that once I consolidated that other debt that I didn't go down the same path and accumulate additional credit card debt after taking out an home equity loan.

[Casey]

Essentially, one may be financing a dinner, a vehicle, or a TV for the term of a mortgage. Saying it out loud makes it sound like a bad idea. Stretching out that amount at a lower interest but longer term might be a wash or even more expensive. Just do the math.

[BrianL]

Not really. Not real good idea to stretch CC debt out 15 years,, but in general HE loans are great for that purpose. Way lower rates, and many time interest is deductible. Just don't stretch past 5 years.

[Throwin Darts]

Not really. Not real good idea to stretch CC debt out 15 years,, but in general HE loans are great for that purpose. Way lower rates, and many time interest is deductible. Just don't stretch past 5 years.

Im not a CPA but I'm pretty sure the tax law change in 2017 made it to where the interest is not tax deductible unless the funds are used to improve the property that serves as collateral. In the OP's case of debt consolidation I don't believe he would have a tax benefit.

[rossn2]

How much are your closing costs going to be on the refi?
Sometimes they are pretty hefty...it's like buying your house all over again.

[DJames]

Tex_Cattleman can answer your questions for you.

[Southbound 85]

https://www.ramseysolutions.com/ramseyplus/financial-peace/home

[dirtybay]

Things to consider as well - what is your current rate on home, if you still have a lien. If the debt is $25k or less I’d consider a personal loan. If you still have a lien, how many years left on it… if more than then consider going to 15. Rates are not as low as they have been but still pretty good to consider a refi

[scott123456789]

How exactly do the logistics of a heloc work? Say I have 300k of equity in my house. I can get a heloc for $100k at 2%. But is that on a debit card or what? Then there are funny rules about whether you are using any or all of the money how interest is calculated?


I understand the premise but haven’t researched enough to understand the details.

[HogHunter34]

Me personally, I’d follow more the Dave Ramsey approach by making some personal sacrifices & changes to pay more toward the debt
Examples being stop eating out & calculate how much that saves a month & use that extra $ to pay more toward CC debt.
Your grocery bill will go up some since you are eating at home more, just crunch out the savings that was offset & use that number
You may look around & find other unnecessary expenses you can do without & apply the same approach
Good luck

[ohuett]

I agree with HogHunter34. Before you spend the money to refi, spend $20 on Dave Ramsey’s book called The Total Money Makeover. Follow his 7 baby steps to get out of debt and become wealthy.

My wife and I did it 10yrs ago and we’ve never regretted the sacrifices we made to become debt free.


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[Codie]

Looking at this option to pay off some CC and other small debt...are there any real draw backs to it?

Sure there is - It is taking a debt that originated as a short term debt and signing up for monthly payments for the long term. I see this application come across my desk often and I have seen times when it made sense for the borrower and I have seen times when it did not make sense for the borrower. Too many variables involved to give a blanket answer without knowing all the details.

[gingib]

No chance!

I would learn how to be a little more financially sound and fiscal #1.

Pay off those "small" debts then refi your house

[Capt.Brown]

How much are your closing costs going to be on the refi?
Sometimes they are pretty hefty...it's like buying your house all over again.

This, it’s prob not worth the cost.