Using your Home to Pay off Credt Card Debt

In today’s economy there are many people who are looking for ways to relieve the stress that they are feeling trying to make ends meet. With many employers laying off employees or cutting back on overtime and bonus’ there is almost nowhere to go to get a little extra money to pay down the credit cards.

It becomes a vicious cycle. You use your credit card more to make ends meet because you have less disposable income and you have less disposable income because you have too much debt. In the day you would have gone out and gotten a second job to make ends meet but these days you are holding onto your current job for dear life.

You own your home, the temptation to take a home equity loan to pay down or pay off your outstanding debt is very tempting but is it a good idea? The answer to that is, maybe.

The first thing you need to consider is realistically what is your house worth? At it’s lowest point what will it be worth? Do you have a mortgage? At what percent and what do you still owe on it?

If you have owned your home for a long time and have a minimal or no current mortgage then it might be advantageous to take out a mortgage to pay off your credit card debt. This is a very dangerous step to take however. You have to be seriously committed to no longer using your credit cards beyond what you can pay off each month. No more running a balance and paying interest. The danger of using your home as collateral for your unsecured debt is that if you haven’t changed your ways, in five years you are going to be back in the same place only then you will already have a home equity loan on your home and credit card debt in addition.

With all the homes that have been foreclosed on it is irresponsible to lightly put the roof over your head in danger. You have to consider the consequences of losing your employment. Would you still be able to make your home equity payment? Not being able to do so could cause your home to go into foreclosure.

If you have a mortgage given the downturn in the housing market it is less likely that you will have a lot of equity in your home to tap into and banks today are not recklessly giving home equity loans that bring the amount owed on your home, more than the value of your home.

Keep in mind that your home is your castle and your most prized possession. Yes, the interest that you pay on your home equity loan may be 100% deductable on your income tax and your credit card debt interest is not. Is that a good enough reason to use what equity you have to pay off your debt. My answer is no, it isn’t.

Times are tough, everything is unsure at the moment. Keeping your home as free of debt as possible is your safest course of action.

By all means contact your credit card company and try to negotiate for a better rate, if you can’t then shop around for a card that is offering free or low interest for transferring balances. Keep your credit score as high as you can and guard the roof over your head. The credit crunch can’t last forever and the sooner you stop using your credit cards the better.