Paying Off Your Credit Card Balances With Your Home Equity

Advantages of Paying Off Credit Card Bills With Home Equity

If you owe a lot of money on your credit card, you may be thinking of using your home equity to pay off your loans. This can be either good or bad depending on how good you are at managing money. The three main benefits of doing this are:

1. Reduced rates of interest.

The interest rate on your home equity account will be three, four, or more percent cheaper than the interest rate on your credit card. This lets you keep more of your money in your pocket.

2. Pay off your loan in a shorter time period.

Since you have a lower rate of interest,, you will be able to liquidate your debt a lot quicker. For instance, let’s say that the annual interest rate on your credit card is twenty percent and you own $5,000. If you manage to pay off the balance in 12 months, you’ll have paid $5,558 total. If, however, you transfer your debt to your 5% home equity loan, you can pay this debt off in just 11 months.

3. You wind up paying less money.

Taking the identical circumstances as above, with the 20% rate of interest, by year’s end you’ll have paid out $5,558. With the lower home equity interest rate of 5% , however, you’ll end up paying only $5,138 – nearly 9% less. And the bigger the amount of your credit card debt, the more you benefit by transferring your balance.

Should you always transfer your credit card debt to your home equity account? There’s no hard and fast rule. The important thing is to simply take stock of all the options you have when paying off a debt.

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