Should homeowners tap equity to pay off costly debt? Weigh these pros and cons
Home equity levels remain high, but using that equity to consolidate your debt can come with big trade-offs.
Homeowners may consider using their home equity to pay off costly debt, but it is essential to weigh the pros and cons. Currently, credit card balances have reached $1.26 trillion, with average interest rates above 22%. In contrast, home equity loans and HELOCs are averaging around 7%, offering substantial savings over time. However, using home equity for debt consolidation comes with risks.
One advantage is lower interest rates, which can significantly reduce overall payments. Home equity products also simplify the repayment process, reducing the mental burden and missed payment risks associated with multiple debts. Additionally, disciplined borrowers may find it easier to pay off debt faster due to lower rates and reduced interest charges.
However, tapping into home equity poses significant risks. Your home becomes collateral, meaning missed payments could lead to foreclosure. Also, variable-rate HELOCs can create payment uncertainty if interest rates rise. Lastly, consolidating debt doesn't address spending habits, so there's a risk of accumulating more debt in the future.
Before using home equity to consolidate debt, carefully assess your financial situation, create a solid repayment plan, and consult a financial advisor or debt expert.
Written by urgent.news from CBS News's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
