Let’s talk about another common purpose for HELOCs—consolidating debts. A cash-out refi is also often used for this purpose.
With the HELOC, you add an additional loan to your current mortgage. With the cash-out refi, you will still have only one loan. Depending on how much you owe on your current loan and how much cash you borrow against your home’s equity, the total amount may be more or less than what you currently owe.
Even in times when mortgage rates are not at their lowest, home loans can still be an amazing bargain compared to consumer and installment rates. A HELOC or cash-out refi can help you pay off debts faster and reduce both the the total interest and total amount of cash out of pocket you spend each month.
Consolidating multiple debts into a HELOC or one home loan is not for everyone. For instance, using your equity to have the equivalent of a 30-year car loan is rarely a great idea. But it may work if you have the discipline to take advantage of a low rate to speed up—rather than slow down—payment terms. In other words, use the low rate of a HELOC but pay the amount used for the car back in the same 4 years or so that you would have with a typical auto loan.
Consolidation can make debts disappear with less total interest expense than they would otherwise.
Want to explore what a good consolidation plan could mean for you? Reach out, and we'll be happy to help!
AND THE FACTORS THAT INFLUENCE IT
Length of Credit History
Amounts Owed
Types of Credit in Use
New Credit
Payment History
Timeliness of your payments is the single biggest contributor to your credit score. It's important not only to make your payments, but also to make them by their due dates.Tip: Have a system in place to assure your bills are always paid on time. Set up automatic withdrawals where appropriate.Tip: Keep a cash reserve account to cover payments during possible interruptions to your income.
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