by Gordon Hamilton

Created on: June 21, 2009

The pros and cons of paying off credit cards with a home equity loan should be weighed up very carefully indeed prior to taking this very big step. The pros and cons both exist but the dangers inherent in the procedure may far outweigh the benefits in the event of any future financial difficulties.

It is wise at this stage to at least briefly outline what paying off credit cards with a home equity loan actually entails. The equity in a home is the value of the home less all the debt already secured against it. This would of course include a mortgage but may also include any home improvement loans which have been taken out in the past and remain outstanding. Paying off credit cards with a home equity loan therefore depends in the first instance upon the equity being available.

The pros of paying off credit cards with a home equity loan in the first instance means that the monthly repayment is likely to be slashed. This is because a home equity loan will have a significantly lower rate of interest applied to it than are applied to credit cards, simply because the risk is so much lower for the lender. The home owner will therefore have significantly more breathing space in the assignation of their monthly income and will have at least their short term financial worries significantly reduced.

The cons of paying off credit cards with a home equity loan, however, could potentially be very serious indeed. In the first instance, the term of the loan may mean that the debt will be outstanding for a very long time. This means that the home owner is going to be paying it perhaps as long as their mortgage, if not even longer. The far more serious con of paying off credit cards with a home equity loan however is that should the home owner find themselves once again in financial difficulty and unable to keep up the repayments on the home equity loan, they will be running the very real risk of having their home repossessed and them an their family left with nowhere to live. This is because home equity loans grant the lender a security on the property in the event of a default on the loan.

It is therefore absolutely imperative that the pros and cons of paying off credit cards with a home equity loan be considered very carefully indeed. If it is absolutely necessary, the home owner may not have a choice; but in the event that it is not, they may wish to persevere with the repayment of their credit cards in the fashion which they have already been so doing.

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