Using home equity to pay off debt? Make sure you do this

Borrowing is expensive — especially if your balance also comes with a high interest rate.

Debt consolidation is a method of paying off debt faster. You could use one personal loanBalance transfer credit card or even yours Home is equal Consolidate your existing debt and pay it off faster.

A Home equity loan or HELOC Could be a good solution for homeowners Pay off high interest debt Since you can use the equity that you have built up in your home Qualify for lower interest rates And start clearing your balance.

But to really save yourself money and time in the long run, there’s one important thing you should do when making your payments to lower your balance. Namely, start working on your spending habits and budget so you can pay off debt and avoid more in the future.

If you’re interested in tapping into your home equity, explore the home equity loans and lines of credit you may qualify for today.

How to use home equity to pay off debt

A home equity loan or line of credit can be a great way to score a low interest rate and help you pay off your balance in full. To begin with, you should Build some equity in your home (so you have something to borrow against).

If you choose one Home equity loan, you usually get a lump sum loan, which you pay back over a period of time at a predetermined interest rate. Depending on your credit, many top rates today are less than 10% APR.

A HELOC Works a little differently, but can still help you consolidate payments. After you’re approved for a certain amount on a line of credit, you can borrow the amount you need from the HELOC to pay off your debt and pay only your new interest rate on the amount you borrow.

One risk to this strategy, whether you use a home equity loan or a HELOC, says Keith Spencer, CFP, founder of Spencer Financial Planning. Could be worse.”

That’s why being honest with yourself about how you accumulated debt — and how to avoid it — should be an important part of your debt repayment plan.

Compare the home equity loan options available to you now to see if this is the right strategy for you.

Change your habits to avoid more debt in the future

“If you pay off that personal debt, but don’t change your behavior and spending habits, you can end up in the same position with more debt,” says Spencer.

Start by finding the spending habits that got you into debt in the first place.

For example, if you’re racking up credit card debt for overspending, start making changes. Look back over the past few months’ statements to figure out exactly where your money is going. Then, use it to create a realistic budget that you can stick to while paying off your home equity loan or HELOC — and beyond.

On the other hand, maybe you have high-interest debt because you need to use a line of credit to pay quickly for an emergency expense such as a car repair or to cover daily expenses during a period of income loss.

If so, start your construction emergency fund. Experts usually recommend saving a few months of expenses. Saving may take time A solid amount of money Savings can help you avoid debt in the future as you pay off debt, but pull it from when you need it most.

It is especially important to change your habits when you are Debt consolidation Using your home equity. Unlike some other consolidation options, home equity loans are secured by your home, putting you at risk of foreclosure if you default on your payments. Before you apply for a loan, create a repayment plan that fits your budget so you can make sure you make your payments in full and on time each month.

Bottom line

If you have existing debt, especially if it’s a high-interest rate credit card or personal loan, a home equity loan or line of credit can help you consolidate and pay it off faster — while saving yourself money in the long run.

But if you want to end the cycle and get out of debt, make sure you take an honest look at your spending and start creating a budget that you can stick to, so you don’t end up in the same position later. Turn on.

If you’re thinking about using home equity to help pay off debt, start by learning about the conditions you may qualify for.