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Repairing Bad Credit with a Home Equity Loan
By Karen LawsonMortgage Credit Problems Columnist
You're in trouble
with credit card debt and don't know what to do. You may qualify for a home
equity loan that can help you reduce monthly payments and repair bad credit. Home
equity loans, also called second mortgages, typically charge higher interest
rates than your first mortgage, but may offer lower rates than what you're
paying on consumer debt. Let's examine the features and possible benefits of
getting a home equity loan to deal with excess debt and bad credit:
Long and Short Term
Debt: Doing the Numbers
A home equity loan can consolidate several payments into
one, and it will probably carry a lower rate than your consumer credit accounts.
You can also eliminate late payment fees and over limit charges on credit cards
by paying them off with a home equity loan. While a lower rate helps lower your
payments, remember that some of that payment reduction comes from stretching
out short term debt into long term debt. Taking a home equity loan could increase
the interest paid over the life of the loan. The longer it takes to pay off
debt, the more interest you'll pay. However, if you are only able to make the
minimum payment on your credit card debt it could take many years to pay it off
anyway. The home equity loan can provide relief and help you preserve or
rebuild your credit.
Get Out the Scissors:
Eliminating Credit Card Debt
It's disturbing to note that people often go right back to
old habits and run up their credit cards after refinancing or taking out a home
equity loan. They end up with higher mortgage debt plus more credit card debt!
In order to avoid this, you may want to close some of your credit card
accounts. Generally speaking, it's good to have one or two active accounts with
balances of no more than a third of their credit limits. Finally, if you have
problems with impulsive spending, consulting a credit counseling agency may
help you modify your behavior as you work toward repairing bad credit.
About the Author
Karen Lawson is a
freelance writer with extensive experience in mortgage banking. She holds BA
and MA degrees in English from the
About the Author
Karen Lawson is a freelance writer with more than fifteen years of experience in mortgage banking. She holds an MA degree in English from the University of Nevada, Reno.
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