Home Equity to Eliminate Credit Card Debt Faster
Let’s Talk About Another Way to Start Getting Rid of Credit Card Debt. Now, of course, you want to make bigger monthly payments so it goes down to principal. We’ve got videos on that, and you can eliminate credit card debt faster. Sometimes that’s really not an option because you may not be able to pay it as fast as you’d like by making larger payments. So what do you do? Are you just out of luck?
Well, there are other things, like credit repair services and those that might try to negotiate a lower amount than you owe. But let’s just say you’re looking at ways of reducing it faster. We have a video on balance transfers, basically taking what you owe on a credit card, let’s say it’s a thousand dollars at twenty percent, and moving it to a new card. They might charge a three percent fee, but it might be zero percent. You’re going to pay that off faster at zero percent.
What about if you own a home and you have equity in your home? Home equity loans. I’m not saying this is something you should do, but it’s something you can look at as a tool because it’s not eliminating your debt. Remember, you’re not getting rid of the debt; you’re just moving it to an alternative that might allow you to get rid of it faster.
Or if you’re in a pinch when it comes to money and you think that may not last too long, you might be able to make larger payments later. This might be a good way of getting your monthly payment down. And here’s why:
With a home equity loan or what they call a home equity line of credit (I’ll tell you the difference in a moment), you’re going to get a chunk of money that you can use to pay off your credit cards. Your credit cards with 20% interest are gone. Then you’re going to get the going rate for a home loan. Now, this goes against your home, so if you become delinquent, you could have issues with your home, just like not paying your mortgage. Think of it as, because it is essentially a mortgage, it’s like having two mortgages on your home.
But that ten thousand dollars at twenty percent might have a certain monthly payment, or you might be trying to pay more. But at twenty percent, that’s pretty substantial. You might be able to get a home equity loan depending upon the markets at eight, nine, ten percent, maybe less. It really depends on the going rates. But you’re probably going to get, and you will get, a fixed-rate term, meaning you might have 10 or 20 years to pay that back at a lower percentage rate, so you’re going to have a smaller monthly payment. Now, the best thing to do is to pay as much as you can every month to get rid of it, but you’re swapping a 20% rate for something lower, maybe eight, nine, or ten percent. That makes a big difference, and you’re able to pay it over a longer period of time, so your monthly needs go down.
I don’t believe in paying minimums, but it always helps to have the least amount of money being obligated to pay the least amount of money every month. What does that mean? All of your debt has a minimum payment due. So you look at those, and that’s how much you have to pay if you were to fall on hard times or someone in the household loses a job. What is the minimum amount of money that you can pay every month and not lose your home, your car, and have someone come after you for substantial amounts of money you made out?
So let’s say it’s 200 on a credit card or 100 on your home equity loan, whatever it may be. You know what the minimum is. That’s 200, 100; that’s 300. Now you might be making payments, hopefully you are, to get rid of it faster, of 800 a month. But the worst-case scenario, something goes wrong, you actually only have to make 300, and you’ll still be okay. So I like to have the lowest minimum payments that I possibly can but then pay as much as I possibly can to get rid of it fast.
A home equity loan is a great option for you to look at if you find yourself not able to make your payments, you think you’re going to get out of this in the future. So what you do is you take money out, let’s say it’s twenty thousand dollars in a home equity loan, rely on credit, you pay off one, two, three, how many credit cards you have; now those are gone, and you’ve got your minimum monthly payment for that home equity line.
Now, the two different things are you can get a fixed amount of money on a fixed term. So, for example, you take out a twenty thousand dollar loan, they say you have to pay it back over 10 years at eight percent, and they give you the amount you have to pay every month. Of course, you can pay more; that’s a fixed amount of money and it’s for a fixed amount of time. Then there’s what’s called the line of credit. A line of credit, they might say, well, the maximum you can take out is thirty thousand, so you can take out ten, pay it back, a couple of months later take out five, pay it back; maybe you gotta take out a little more, pay it back. You’re able to access that credit, and then, of course, your payments will change over time. That’s another option to have as well.
But either are definitely tools that you might want to look at if you need to lower that monthly payment, or you just want to get rid of those higher interest rates because that’s going to allow you to pay off your debt faster. Take a look; it’s worth looking into as one of the tools to get you out of debt as quickly as possible. Please hit the like button if this was helpful. Always appreciate comments, especially if you’ve got questions. In our other videos, we have playlists to help get you out of debt, ways to get out of debt like this, just one of many strategies. And, of course, we’ve got many different videos on credit cards to use to your advantage once you get rid of your debt. Thanks for watching!