Using a Homeowner Line of Credit to Consolidate Debts

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A homeowner line of credit is a special type of loan that allows you to borrow money over an extended period of time, up to a preset limit that is set by your home equity. By using a homeowner line of credit instead of a more traditional loan, you are allowed a greater freedom over the amount that you spend and where you spend it than you would be with most forms of lump-sum lending. The information below should help you to decide whether a homeowner line of credit is right for you and your specific borrowing needs.Using EquityIf you’re planning on borrowing money to consolidate your debts, then you may need to have a larger loan or one that can be used to cover multiple sources of debt with ease. Very few types of collateral exist that can secure such a large amount, and an unsecured loan can carry interest rates so high you may not save much by consolidating. By choosing to use home equity as your collateral, you can borrow the amount of money that you need while saving quite a bit on the interest that you pay.When you use your equity to secure a homeowner line of credit instead of a more traditional homeowner loan, you will also be able to use the borrowed money as you need it instead of simply borrowing a lump sum to perform all of your consolidation at once.Choosing a Line of CreditThere are a number of reasons why a homeowner line of credit may be a favorable alternative to other forms of loans for debt consolidation. In addition to featuring an expanded flexibility due to the nature of a line of credit, you may be able to get the line of credit issued with a limit of as high as 125% of the value of your equity. Because the loan is issued as a credit line instead of a straightforward loan, you can access the money slowly over a longer period of time. This also allows you to take the loan in more manageable pieces; instead of borrowing the money outright, you can use a portion of the loan and take the time to pay some or all of it back before using the next portion.Debt ConsolidationWhen using a homeowner line of credit for debt consolidation, you can negotiate with and repay each creditor separately instead of using the same loan to repay all of your debts at once. This can allow you to potentially secure a better deal on various debts, saving you money on your repayment.Additionally, you can use the line of credit to repay some debts in multiple payments; by spreading your debt payments over several billing cycles, you can begin generating positive reports to credit reporting agencies before paying off the debt completely.