Current data shows that many people in Tennessee and elsewhere are struggling to stay afloat financially. Unfortunately, some people have already received notices of foreclosure on their homes in the mail and are hoping to explore possible options for halting the process. Credit card debt is another common issue for those whose finances have gotten way off-track since March 2020.
When a person pays a mortgage on a home, he or she accrues equity. The equity a person has is, in fact, the amount of mortgage balance subtracted from the current market value of the home. In other words, it is the part of the home that the mortgagor actually owns. In many cases, a homeowner can take a loan out from the equity.
Should a home equity loan be used to pay off credit card debt?
If a person takes out a home equity loan, he or she might decide to use the funds to pay off the balance on a credit card. The loan itself would be a new debt, however, which must be paid back in monthly installments. Some people think this is a good idea because the interest rates associated with a home equity loan are typically lower than the rates one might incur on an outstanding credit card balance.
A person could lose his or her home if an equity loan is not paid off on time
The biggest downside of using a home equity loan to satisfy credit card debt is that the home itself is used as collateral. If a person fails to pay back the loan, he or she could lose the house. Many people consider this too great a risk and opt for other debt relief options instead, such as filing for bankruptcy, which shows up on a person’s credit score but can, in many cases, halt the foreclosure process and help someone who is struggling gain a fresh financial start in life.