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5 Reasons to Consolidate Debt with a Home Equity Line of Credit

Key Takeaways

  • While some types of debt can be a helpful tool to achieve your goals, high-interest debt can become a drag on your finances, making it harder to reach other money goals.
  • If you own your home, rising home values mean that you may have access to a Home Equity Line of Credit (HELOC), which could make your existing debt easier to manage.

The improving economy has more Americans than ever feeling comfortable borrowing money to cover various expenses. Consumers owed a record high of $13.2 trillion in the first quarter of 2018, according to data. That total includes mortgages, auto loans, student loans, and credit cards.

While some types of debt can be a helpful tool to achieve your goals, high-interest debt, in particular, can also become a drag on your finances, making it harder to reach other money goals. If you’re looking for a way to reduce your debt burden, you may have more options than you realize. If you own your home, rising home values mean that you may have access to a Home Equity Line of Credit (HELOC), which could make it easier to manage—and ultimately minimize—your existing debt.

Debt consolidation is the second-most popular use of HELOC funds (after home renovations), according to a recent survey. Here are five reasons why so many consumers are considering it:

  1. A lower interest rate. Since you’re using your home as collateral, HELOC rates are significantly lower than credit card rates, some auto loan rates, and student loan rates. The lower your interest rate, the more money you’ll free up each month to pay down the balance or use toward other financial goals.
  2. Streamlined payments. If you have multiple credit cards or several other loans, you can consolidate all of them into one HELOC. That means you only have one payment to keep track of each month. Make it even easier on yourself by signing up for automatic payments for at least the minimum amount, so that you’ll never miss a payment.
  3. Increased flexibility. During the draw period of your HELOC (usually 5 to 10 years after opening), you typically have to pay only interest on the balance, which gives you more options on when and how to make your principal payments. If you’re able to make extra principal payments during the draw period, you’ll be able to reduce the total amount of interest you pay even further.
  4. Credit score boost. Having high credit card balances relative to your limits can hurt your credit score. Reducing those balances by transferring that debt to a HELOC could improve your credit score over time.
  5. Potential future borrowing. As long as you don’t draw down your entire line of credit, you’ll have access to additional funds if you need them in the future. Plus, as you make payments, funds will become available again. That means you have options to avoid more expensive means of accessing funds, such as new credit card debt, personal loans, or borrowing against your 401(k).

More information

We are committed to helping you reach your potential by providing personalized solutions. Our dedicated colleagues can help you find the right product to help you reach your goals. To learn more about home equity, please call 1-888-514-2300, visit us online, or Ask a Citizen at your nearest Citizens Bank branch.

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