Debt happens to the best of us. In fact, it happens to most Americans. The average American holds a debt balance of $96,371. If you’re looking for a way out of debt, you may be considering your options for consolidation loans. Consolidation loans are designed to minimize costs by combining your debts and rolling them into one loan payment. One type of consolidation loan available to homeowners is a home equity loan.
Below, we’ve explained how home equity loans can be used to consolidate debt and what the process entails.
Can I Use a Home Equity Loan for Debt Consolidation?
Yes. Home equity loans can be used for many purposes, including debt consolidation. Often, these loans have much lower rates than credit cards, so they can save a considerable amount of money. If you’re a homeowner and you have a lot of high-interest debt, a home equity loan is an option you should consider.
There are many reasons that people run into debt, and not all of them involve a shopping addiction. Tuition costs, medical expenses, and home repairs are just some of the many reasons that may cause someone to take on debt. Debt isn’t necessarily a bad thing until it becomes unmanageable. Consolidation loans like home equity loans are often used to help people pay down high-interest debt to make their expenses more manageable.
How Does a Home Equity Loan Work?
A home equity loan is a type of loan that uses your home as collateral. The loan is secured by a lien against your property and allows you to borrow money against the equity you have built up in your home. To be eligible, you must have a certain amount of equity in your home and a good credit score.
The process is straightforward. You receive a lump sum of money that you pay back, usually with interest, over a set period, typically 5-15 years. The interest rate on a home equity loan is usually lower than that of unsecured loans, such as credit cards or personal loans, making it a popular choice for debt consolidation.
Who Is Eligible?
Not everyone is eligible for a home equity loan. To qualify, you must meet certain requirements mandated by your lender such as:
- Good credit – usually a credit score of at least 620 is required.
- Low debt-to-income ratio (43% or less)
- At least 15% equity in your home
- Proof of steady income and consistent employment
Is a Home Equity Loan Right for You?
There are many types of consolidation loans available today and home equity loans are just one of them. If you’re interested in exploring this option further, our team would be more than happy to assist you. Call today to get in touch.