Should You Pay Off Your Debt With a Home Equity Line of Credit?

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Home equity lines of credit are based on the equity in your home and it is just that, a line of credit. If you have equity built up in your home this line of credit is a good thing to have. The interest rate on home equity lines of credit are based on the feds funds rate. In other words the interest rate on a home equity loan will rise when the Federal Reserve raises the prime rate.

Just because you have this line of credit does not mean that you have to have anything on it. I know people that have them for emergencies and may not use them for many years, but if something does happen, it is as simple as writing a check to have some extra money and the interest rate is far lower than that of a credit card and the interest is also tax deductible.

Short term borrowers make good candidates for home equity loans because they can get a good rate due to the short term on the loan. This is an excellent option for consolidating your debts if you can pay them off in five years or less. Once you have paid off the loan, the account can be kept open for that day that you might need it.

You can also get a home equity loan that has a longer term, but your interest rate will be higher than most fixed rate mortgages. Although, this rate will probably still be lower that what you are paying on most credit cards. So if you are looking for a way out of debt and are fairly disciplined with your money, a home equity line of credit is a smart way to go as long as you can pay it off in five years or less.

Marjorie Salada is the owner of debtmanagement1.com, a website that contains information on debt consolidation, debt settlement, debt counseling and how to manage credit card debt.