The recession hurt consumers in a wide variety of ways, so if you took on extra credit-card debt while earning less money, you're not alone. Even if you just have some lingering credit-card debt from pre-recession days, you may want to consider the benefits of a home-equity loan for debt consolidation.

Advantages to consolidating debt with a home-equity loan

Featured Home Equity Loan Provider
    • Get your Free Quote in Minutes!
    • Lenders Compete for your Business
    • Lock in a Low Fixed Rate Before Rates Increase!
    • Do you have the Lowest Rate Possible? Find Out Instantly!

Debt consolidation loans can help your finances in a number of ways:

  • Reduce your monthly payment. Home-equity loans typically have a lower interest rate than credit cards so your overall monthly payments will be lower.
  • Take a tax deduction. The interest on a home-equity loan is generally tax deductible, while interest paid on credit cards is not. Take your tax refund and use it to pay off your home-equity loan faster for an even better financial boost.
  • Pay one bill and avoid late fees. Paying multiple creditors increases your risk that you'll incur a late fee or miss a payment. If you can consolidate all your bills into your home-equity loan, you can automate the payment through online banking and eliminate the concern about late payments.

Qualifying for a home-equity loan

Consult with more than one mortgage lender to find the best home-equity loan to meet your needs. You can start by completing the form on this page to find the best mortgage rates for a home-equity loan.

Lenders will need to review your home-equity position (your home equity should be at least 5 to 10 percent even after you consolidate your debt into your new loan); and they will also review your creditworthiness and ability to repay the loan. Most lenders require a credit score of 720 or 740 or above to receive the lowest interest rates on mortgage loans, but you may be able to qualify for a home-equity loan as long as your credit score is 640 or above.

You will also need to have a debt-to-income ratio based on the new loan of a maximum of 45 percent. Your lender can evaluate your debt-to-income ratio based on paying off your credit-card debt with your home-equity loan.

Risks of debt relief with a home-equity loan

The biggest risk of a home-equity loan is that if you cannot keep up with the payments you could lose your home to foreclosure. If you decide to take out a home-equity loan for debt relief, be sure you take steps to improve your spending and saving habits so that you don't incur new debt.