The equity in your home can provide a cost-effective way to borrow money for just about anything. A home equity line of credit (HELOC) works similar to a credit card, but is better suited for large expenses and generally has a lower interest rate. With a HELOC, you borrow against the equity in your home that is used as collateral. Here are some of the best HELOC borrowing strategies and smart ways to use your HELOC:
Debt Consolidation
A home equity line of credit usually has a better interest rate than other types of loans. Financial obligations such as auto loans, personal loans, and credit card balances with high interest rates could be consolidated with a HELOC. This form of debt consolidation can provide lower interest rates and eliminate multiple payment due dates. The downside of a HELOC is that it uses your home as collateral, so if you fail to repay it, you could put your home in jeopardy.
Higher Education
College is expensive and if you or your child don’t qualify for low-rate, flexible federal student loans, borrowing against your home’s equity may be one of your better borrowing options. Before committing to any type of loan, compare the interest rates, repayment flexibility, and potential borrower benefits, to choose a financing option that best suits your needs.
Home Improvements
One of the most common reasons for taking out a HELOC is home improvements. Upgrades such as a new deck or kitchen renovation may increase the value of your home and be well worth the investment down the road. Even if you plan to keep your home, upgrades or renovations can make it a better place to live.
Emergency Expenses
Unexpected expenses may arise that deplete your emergency savings fund. Your HELOC can supplement emergency savings if life events such as loss of employment, medical expenses or expensive auto repair bills happen.
What About Other Expenses?
You could use a HELOC to pay wedding expenses or get a business off the ground. If your other borrowing options have high interest rates, a HELOC might be a good loan option.
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