By owning a home you have one very strong advantage that non home owners do not have. You own an appreciating asset which creates equity. Understanding how you can use this can save you thousands every year on your debt payments by understanding a basic tax law and understanding the difference between having secured and unsecured debt. Here are some reasons why it can be smart for you to use the equity in your home to eliminate your unsecured debt.1) It will allow you to pay of those credit cards that have higher interest rates and consolidate those payments into a lump sum payment at the lower interest rate.2) Reduce your interest rate on any other debt you have. The loan you receive with you refinance is normally the lowest interest rate you can obtain. The reason why the interest rate is much lower is because you will be using secured debt opposed to unsecured debt. Secured debt is backed by a real asset and decreases the risk to the lender dramatically and therefore can charge a much lower interest rate. Credit cards are the riskiest form of debt for lenders and therefore has the highest interest rate.3) Consolidate your debt to one monthly payment. This will decrease the risk of missing payments and make it much easier to keep track of your bills.4) Turn your interest to becoming tax deductible. One basic tax law that every home owner needs to know is that your mortgage interest is tax deductible. So, not only are you paying less interest that you would be paying on your old unsecured debt, you are now able to take this interest as a tax deduction and therefore lowering your actual payment even more.* There are a three ways you can access the equity in your home to consolidate your debt:1. A “cash-out” refinance — when you refinance to get cash out, you’re refinancing your mortgage to a loan amount more than you currently owe and taking the difference in cash. Depending on your current interest rate, you may also be able to lower your monthly payment and get cash to pay off other debt at the same time.2. A home equity loan – a home equity loan is another loan on your home that taps into your equity. Commonly referred to as a “second mortgage,” a home equity loan allows you to turn your equity into cash without refinancing your first mortgage—and usually in less time than it would take to refinance your first mortgage.3. A home equity line of credit – A home equity line of credit is very similar to a credit card except that it uses your home’s equity as the revolving line of credit. You pay only if and when you use the money. You can get a home equity line of credit in as little as ten days.4. Home Equity Line of Credit – A home equity line of credit is very similar to a credit card except that it uses your home’s equity as the revolving line of credit. You pay only if and when you use the money. You can get a home equity line of credit in as little as ten days. When you use the equity in your home to consolidate debt, consider cutting up your credit cards and keeping one for emergencies only. If you increase your monthly cash flow by consolidating debt, think about using the extra money you now have to save or invest for retirement or to pay down your other debt faster.
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