When you’re struggling to get out of debt
, it can seem as if there are dozens of products that are being pitched at you. One of the oldest products on the market is a HELOC or home equity line of credit.
These loans began showing up on the consumer market in the late 1970s, but they have been around for much longer than that for businesses. A HELOC takes the equity in your home or business and uses it as collateral on a new loan. Because the money is tied up in an asset, these loans are usually able to offer lower interest rates than most credit cards. The risks that a person assumes in order to get that low interest rate, however, are just too great.The most important thing to remember about a HELOC is that they are loans that are taken out against your home. That means that if you cannot make the payments, you are at risk of losing your home. While many believe that this is only a minor issue (they know they can afford the payments), the recent recession showed just how dangerous these loans can be. Many people who had taken out a HELOC to pay off their credit card debt or finance a home improvement
were blindsided when the job they thought was secure let them go with little or no warning.Instead of risking your home over your credit card debt, it makes a lot more sense to just take out a debt consolidation loan. Like a HELOC, this loan can pay of all of your existing debt. In fact, it’s possible that a debt consolidation loan will give you more capital than a HELOC, since it is not limited by how much of your home you have paid off.
A debt consolidation loan can offer you a lower interest rate than your credit cards; in fact, many people have received rates that are similar to what they’ve been offered with a HELOC. Furthermore, you’ll always know how much your interest rate is and what your monthly payment will be; debt consolidation loans lock in your interest rate and payment so they’ll never change.