Many people dealing with large amounts of debts consider home equity loans as a way to consolidate the debt, reduce their payments, and hopefully pay it all back sooner. It seems like a great idea on its face, but there are a lot of potential problems.
Home equity loans allow you to reach into the equity. you have built up in your home over the years and use it for various things. Most commonly, they are used for repairs and additions to the home. However, they are also used on some occasions to try and pay back credit card and other unsecured debt.
Home equity loans are not as easy to get as it may seem. Many people find that the equity in their home is remains locked, even if it is significant. I often tell people that home equity loans are usually only available to people who don’t really need them. What I mean is that when you are in a tough position banks are reluctant to give you money, even if there is equity in your home. Home equity loans are best utilized by individuals with large amounts of income and equity. Unfortunately, people who need to access their home equity find it most difficult.
Banks, don’t actually want to have to foreclose on your home to get paid. Therefore, they only let money to people who they believe will almost certainly pay them back.
Even if you get a home equity loan, they still raise problems. First, with rising interest rates the loans often are still 11% to 12%. While this is better than nearly 30% on credit cards, it is still significant.
But, the biggest problem is that if you don’t pay a home equity loan you can lose your house. Failing to pay your credit cards can be problematic, of course. However, if you fall behind on your credit cards, they cannot come and directly take your house. If you fall behind on your home equity loan, that can absolutely happen. Even if you think you should have no problem, paying it back, things happen. You can get sick, injured, or lose your job. You don’t want your worst-case scenario to be losing your home.
Call us at 412-414-9366 and I would happy to be at discuss some different options, including chapter 13 bankruptcy. Despite the name of bankruptcy, it involves repaying your creditors at 0% interest , with none of the dangers of a home equity loan. I would be happy to discuss your situation and see if it is a better option.