Home Equity Credit Lines Offer Debt Consolidation To Save You Money

Many people today are suffocating under a heavy load of debt. It is difficult, if not impossible,

to make the minimum monthly payments let alone set anything aside towards savings. These people need a way to ease their financial burdens or it will end up destroying their credit. Although there are many options available to address this problem, one of the most popular solutions has been a home equity credit line.

A home equity credit line is a financial product that offers an individual the ability to borrow up to 100% of the equity available in his home. This product is often confused with another loan that many people are familiar with, the home equity loan. Each of these products use the house as security for the loan , they each have potential tax advantages, and they are both often used for debt consolidation. There are, however, a few significant differences.

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• Revolving line of Credit. Home Equity Credit Lines designate a certain number of years as the draw period. During this time the borrower can access the funds as often as they wish. This is a convenience to the consumer but it can also be a temptation. People can run up this credit line the same as they would a credit card. The money is accessed using a line of checks.
• Variable interest rate. There is less certainty regarding the credit lines rates because it can fluctuate with time.
• Pay out. Home equity loans pay out a lump sum amount that must be paid off. A credit line can be opened without withdrawing any funds. No payment is due if the loan is never accessed. Some people choose to open an account strictly as an emergency fund.
• Balloon payment. A typical home equity loan expires with a zero balance. Fixed payments reduce the principle over the course of the loan. A home equity credit line will often allows the borrower to pay little or no interest. When the loan expires there may be a balance due which the borrower would have to pay off.

A home equity credit line is good alternative for the purpose of debt consolidation. It allows an individual to take multiple debts and replace them with a single line of credit. This reduces the monthly payments and provides some budgetary relief. Once the loan is paid off the credit line can remain open as an emergency fund until the draw period expires.

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About the author:

Mark Carney is a professional consultant with First American Debt Consolidation and Loans, a debt consolidation service specializing in financial education, credit counseling, and debt management services nationwide.