Debt Help Getting Rid of Debt

4 Worst Ways To Pay Off Debt

2. Use Your Home Equity

Thanks to a rebound in the housing market, homeowners are starting to get back some of the value in their homes that was lost due to the great recession.

If you’re sitting on several thousand dollars’ worth of equity, you could easily take out a home equity loan or line of credit and zap all of your high-interest credit cards or remaining student loans.

It’s convenient to be sure, but it’s not without certain drawbacks.

Using a home equity line means you’re simply exchanging one type of debt for another. While home equity loans and lines of credit tend to carry lower rates than credit cards, that doesn’t guarantee that you’re going to save any money in the transaction.

If the loan has a variable rate or you’re only required to make interest payments for a set period of time, you may not make much progress if you’re not committed to dumping it as quickly as you can.

The other possibility with a home equity loan is that it could cause you to double up on debt if you end up building big balances on your creidt cards again.

If you get so financially stretched that you can’t keep up with the payments on the home equity line, it could end up costing you your home if the lender decides to foreclose.

About the author

Rebecca Lake

Rebecca Lake is a personal finance writer and blogger specializing in topics related to mortgages, retirement and business credit. Her work has appeared in a variety of outlets around the web, including Smart Asset and Money Crashers. You can find her on Twitter at @seemomwrite or her website, RebeccaLake.net.

2 Comments

  • Many times there are no choices NOT to utilize the worst ways out of debt e.g. An older spouse who worked way past retirement (80) had’t built up a l-t retirement nest egg due to employment mostly caused by companies consolidation + divorce becomes severely ill requiring home care 2 yrs > death leaving other disabled spouse with medical costs
    + punishing tax change to single (25 %) + loss of 1 Social Security check & a mortgage What to do — all your worst scenarios unless family member leaves money to help. Really appalling simplistic advice here as one doesn’t plan @ 25 to be a widow (or) a widower (usually men get remarried faster, older women have more difficulty especially when encumbered w/debt)

    • Hey Nancy,
      Thanks for reading! We realize that not every piece of advice we give is going to work for every reader’s situation. Our only goal is to provide options some people may not think of. We want to wish you the best of luck to you and your situation, and we hope that you may have been able to find more suitable advice on some of our other articles, including this one about planning for retirement.

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