7 Benefits of Emergency Debt Consolidation Loans for Homeowners

7 Benefits of Emergency Debt Consolidation Loans for Homeowners

Here are the 7 Benefits of Emergency Debt Consolidation Loans for Homeowners. When you’re drowning in debt and struggling to pay your mortgage, emergency debt consolidation loans sound very promising. But borrowing from your own equity might sound like too much of a risk.

So what’s the truth of the matter? Is it a good idea to use a home equity loan to consolidate your debt?

If you’ve been worrying about this, we have good news for you. Namely, the benefits of home equity debt consolidation far outweigh the risks.

And to prove it to you, we’ve listed the top benefits of this debt reduction method in the guide below. Read on to learn how to use your equity to rescue yourself from financial disaster.

Your Options When Using Equity to Consolidate Debt

As far as options go, there are two ways of using your home equity to consolidate debt. You can choose either a HELOC (home equity line of credit) or a home equity loan. Here’s how they work.

What is Home Equity?

First of all, let’s clear up the term, “equity.” Equity is not the amount of your mortgage that you’ve already paid off.

It’s based on the current appraised value of your home, not the original closing cost/mortgage amount. Your equity is determined by subtracting the remaining mortgage balance from the current appraised value.

Home Equity Loans For Debt Consolidation

When you take out a home equity loan, you’re borrowing against the value that you have invested in the home. Still, since lenders want to minimize risk, they typically won’t let you borrow the full estimated amount of equity. In any case, this “second mortgage” typically has a smaller repayment period than your original mortgage. 

You receive the borrowed amount in one lump sum. Then, you can use it for debt consolidation and save the rest of it.

HELOC For Debt Consolidation

A HELOC replaces the lump sum described above with a line of credit. The amount you would get for a home equity loan becomes your credit limit. Aside from that, it works the same as a credit card.

1. You Don’t Have to Juggle Multiple Payments Anymore

Now, let’s look at the advantages of borrowing your equity to consolidate debt. First, you can use the amount you borrow to pay off all your other debts. Of course, this depends on your current amount of debt and the amount of equity you can borrow.

Ideally, you’ll even have some left over. Then, you can save this amount to help you out if you have trouble making payments in the future.

Best of all, this means that all of your various, monthly debt payments are reduced to one, single payment. This gives you a lot less to keep track of each month.

2. Fewer Late Payments

The biggest problem about juggling several debt payments is that it’s easy to lose track of them. You can miss a payment simply because it slipped your mind or got lost in the mail.

This results in late payments, along with expensive late fees. Fortunately, this is less likely to happen when you only have one debt payment to make.

3. A Better Credit Rating

The other consequence of overdue payments is that they lower your credit rating every time. If this happens often, it makes it very difficult to get a loan when you need it in the future. Thus, a home equity loan can help you heal your credit.

4. Lower Interest Than You’re Currently Paying

A high interest rate is the most difficult obstacle to face when trying to pay off a debt. Most credit cards fall into the category of high-interest debt.

Typically, though, interest rates on home equity loans/HELOCs are very competitive. So, why not pay off your high-interest debt with this low-interest option? The payments will be much easier and you’ll save thousands of dollars overall.

5. Lower Interest Than Other Debt Consolidation Options

Furthermore, you’re well aware that borrowing your equity is not your only debt consolidation option. But it does have a lower interest rate than most.

The reason for this is that an equity loan is secured against the value you have invested in your home. This makes you less likely to default. Plus, even if you were to default, the lender’s investment is more protected than it would be if the loan wasn’t secured.

Either way, it’s a good investment for them. So, they trust you with a lower interest rate.

6. Tax-Deductible Interest

When comparing debt consolidation options, here’s one way in which borrowing from your equity has a clear advantage. The interest you pay on your home equity loan or HELOC is tax-deductible. So, not only is the interest rate lower than other debt reduction options but it’s also reduced even further by qualifying for a tax deduction.

7. Lower Monthly Payments

Most of the time, lower interest rates and lower monthly payment amounts go hand-in-hand. Home equity loans and HELOCs are no exceptions to this rule.

Furthermore, consider how much of your debt payments are merely paying off the interest. For example, when you pay the minimum payment on a high-interest credit card, only a tiny fraction of this payment goes toward your balance. Most of it merely pays for your accrued interest that month.

The low interest rate you get when borrowing from your own equity means that your payment is much more beneficial. That is, a significant amount of it is actually reducing your balance.

Let Emergency Debt Consolidation Loans Help You

Don’t miss out on all these benefits of emergency debt consolidation loans. Apply for a home equity loan today to reduce your debt and improve your financial situation.