Dealing with credit card debt can be seriously stressful. If you’re struggling to get your balances under control, you may have considered consolidating your cards into one low-interest loan. It might be a good idea to tap into your equity options to pay down other types of debt, especially high-interest credit card balances.
Using your car to consolidate debt
A lot of people don’t know that you can use the equity in your vehicle to consolidate your bills as well. Chances are that the auto rates you qualify for will be significantly lower than the credit card rates you’ve been staring at each month. Just a quick conversation with a Member Services Consultant will confirm how much money you’ve been driving around with.
If you have significant debt, say, on a credit card with a 15% interest rate, using the equity in your car might seem like a simple solution. You could potentially save on interest costs and lower your monthly payments.
Using your home to consolidate debt
If you have equity in your home, you may have a few options for debt consolidation:
- Home equity line of credit: a line of credit you can access as needed until you reach your credit limit.
- Home equity loan: a one-time loan secured by your home.
- Refinancing: You could refinance your mortgage into a new loan with better terms and use the excess cash to pay off other debts.
Advantages to using a HELOC
A home equity line of credit, or HELOC, is a line of credit you take out from a lender. The amount of your credit line depends on how much equity you’ve built up in your home. Like a credit card, a HELOC is revolving debt. This means you can borrow against it, pay it off, then borrow again – just like you would with a credit card. You don’t borrow from it and repay it in installments until it’s paid off, as you would with a home equity loan. HELOCs are often touted as a great vehicle for consolidating high-interest debt. This is because they have some advantages, including:
- Lower interest – Because HELOCs are secured by your home, their interest rates are significantly lower than credit cards. This is because you’re borrowing against the equity in your home to obtain the line of credit. Since it’s secured, a HELOC usually has a much lower interest rate than the average credit card or a personal loan. Additionally, rates on home loan products (including HELOCs) have been at historic lows since the Great Recession. This means that if you roll several cards onto one HELOC, you could save serious money on interest payments.
Risks to consider
For some homeowners, consolidating credit card debt with a low-interest HELOC makes sense, but it’s important to find out how much it will cost to obtain a HELOC from your lender. It might be more than taking out a personal loan, for instance. Most HELOCs have variable rates, so your monthly payments could go up or down periodically. Ask your lender how often the rate can be adjusted, and by how much. Some financial institutions offer fixed-rate HELOCs, but they might have higher initial interest rates than adjustable-rate credit lines. Member Services has your best interests in mind, so you may want to ask them what your best options are.
Using the equity in your property to consolidate your high interest credit card debt can be a smart move if you borrow carefully and repay the loan quickly. Just be sure you fully understand all the costs and risks and have a stable plan for keeping up with your repayments. If you have enough equity in your home or vehicle and are looking for a lower-interest loan to pay off your credit cards or pay for college tuition, consolidating your debts into a single payment could be the right choice for you. Contact Member Services to discover your options today!