 |
 |
The Benefits and Dangers of using a HELOC for Debt Consolidation
By Jonathan Haeber
CMR Columnist
 E-mail Friend
 Printer Friendly
You've racked up quite a resume of debt, and you're not sure how to get rid of it. Your daily stack of mail includes predatory home mortgage lenders who want to consolidate your debt, but beware. There are a number of debt consolidation scams out there.
The Benefits of Debt Consolidation with a HELOC
Debt consolidation using a home equity line of credit (HELOC) has its benefits. Much like a home mortgage refinance loan, interest payments qualify as a standard tax deduction, which could mean thousands of dollars in tax savings every year.
Using a HELOC allows you more freedom to treat the root cause of your debt: your spending. The additional savings in both interest and tax deductions can be put straight back into your home mortgage or HELOC. It may help speed up the process of repaying your debt, but only if you have the discipline to curtail your spending.
The Dangers of Debt Consolidation with a HELOC
The danger of a HELOC is that you could lose your home if you default on your loan. Be absolutely sure that you can make the payments once you qualify. "A home equity loan can be an extremely useful strategy if it's used properly," says Greg Pahl, co-author of The Unofficial Guide to Beating Debt, "but people need to have their eyes open and understand the implications."
Pahl alludes to the flexibility of a HELOC; much like a credit card, you can easily draw out any amount up to your original loan. Many people treat this as free money and suffer the consequences, and statistics prove it; up to 78 percent of consumers who use a HELOC to pay of credit cards end up with the same debt load within two years.
Discipline Goes a Long Way
Although a HELOC may rescue you from sky-high credit card rates, it won't save you from your debt. By limiting your spending and mapping out your finances, you can make the first vital step in repaying your debt. A HELOC will only offer you the convenience of debt consolidation with the added benefit of tax deductions and lower rates.
Source
Bankrate: Eight Ways to Consolidate Debt
About the Author
Jonathan Haeber is a marketing writer for Discovery Channel Stores. He recently purchased his first home, and took a self-taught crash course in home mortgages.
|
 |
|
|
|
|
