With CNBC stating that nearly 60% of Americans are living paycheck to paycheck, it’s no surprise that credit card debt is on the rise.
This mounting debt against a backdrop of record inflation could create significant financial challenges for many homeowners. So what they can do?
Is home equity a secret weapon for debt consolidation?
A 2022 report from Experian states Americans had an average debt balance of $96,371 in 2021—a 3.9% spike from the prior year.
That may be one of the reasons some homeowners are turning to Home Equity Lines of Credit (HELOCs) or fixed-rate home equity loans to consolidate high-rate debt.
Debt consolidation allows people to overcome debt and increase monthly cash flow by rolling all accounts into a single account like a home equity loan.
Given the record-setting increases in home values over the past two years, many homeowners with sufficient equity in their homes are leveraging that equity to secure a home equity line of credit (HELOC) to pay down debt and/or enhance cash flow.
A HELOC loan is a home equity line of credit that enables you to tap into your home’s equity with a revolving line of credit that allows you to borrow against your available home equity with your property as collateral.
You simply withdraw funds when you need to and then pay those funds back. The sooner you pay the balance off, the less interest you’ll pay—similar to a credit card.
What's the benefit to using home equity to consolidate debt?
According to Bankrate, these are some of the benefits to using home equity to consolidate debt:
- One streamlined payment: this allows you to simplify your finances and make one monthly payment.
- Lower interest rate: A HELOC generally offers a lower interest rate than other types of loan products such as personal loans, since your home serves as collateral for the loan.
- Lower monthly payments: Consolidating debt with a HELOC enables you to make lower monthly payments since you’ll have a lower interest rate and a longer loan term.
If you're interested in exploring your options to leverage the existing, available equity in your home to consolidate debt, we'd be happy to help.
There's no obligation, no pressure and no strings attached. Simply get in touch and we'll help you understand your options. It's that simple.