Should I Use My HELOC for Debt Consolidation? | Money & Debt Tips
Can I Still Use My Credit Card After Debt Consolidation?
Debt consolidation can be a powerful tool for taking control of your finances and reducing debt. It can help you combine several debts into one single payment, lower interest rates, and improve your credit score. But one of the common questions for people considering debt consolidation is, “Can I still use my credit card after debt consolidation?”
The answer to this question depends on the debt consolidation loan you choose. Some debt consolidation loans, such as home equity loans, require you to close your existing credit cards. Other types of debt consolidation loans, such as balance transfer credit cards, allow you to keep your existing credit cards open.
Let’s take a look at the different types of debt consolidation loans and how they impact your ability to use your credit card.
Home Equity Loans
A home equity loan is a type of debt consolidation loan that uses the value of your home as collateral. This loan allows you to borrow a lump sum of money and pay it off in fixed monthly payments. Home equity loans usually have lower interest rates than other types of debt consolidation loans, making them an attractive option for people with large amounts of debt.
However, if you choose a home equity loan to consolidate your debt, you will likely be required to close your existing credit cards. This is because the lender wants to be sure that you don’t increase your debt burden further.
Balance Transfer Credit Cards
A balance transfer credit card is a type of debt consolidation loan that allows you to transfer your existing debt from one credit card to another. Balance transfer credit cards usually have a promotional period during which the interest rate is 0%. This makes them a great option for people who want to reduce their interest payments on existing debt.
Unlike home equity loans, balance transfer credit cards allow you to keep your existing credit cards open. This means that you can continue to use your credit cards while you pay down your debt.
A personal loan is a type of debt consolidation loan that doesn’t require collateral. This type of loan is usually used to pay off high-interest debt such as credit cards, medical bills, and payday loans. Personal loans usually have lower interest rates than credit cards, making them an attractive option for people who want to reduce their debt.
Like balance transfer credit cards, personal loans allow you to keep your existing credit cards open. This means that you can continue to use your credit cards while paying down your debt.
Debt Consolidation Programs
Debt consolidation programs are a type of debt consolidation loan that don’t require collateral. These programs usually involve working with a credit counseling agency who will negotiate with your creditors on your behalf to reduce your interest rates and lower your monthly payments.
Debt consolidation programs usually don’t require you to close your existing credit cards. This means that you can continue to use your credit cards while you pay down your debt.
• Home equity loans usually require you to close your existing credit cards.
• Balance transfer credit cards and personal loans allow you to keep your existing credit cards open.
• Debt consolidation programs usually don’t require you to close your existing credit cards.
People Also Ask Questions and Answers:
Q: What is the best type of debt consolidation loan?
A: The best type of debt consolidation loan depends on your individual financial situation. Generally, home equity loans are best for people with large amounts of debt who need to lower their interest rates, while balance transfer credit cards and personal loans are best for people who want to reduce their monthly payments.
Q: How does debt consolidation affect my credit score?
A: Debt consolidation can have a positive effect on your credit score. By consolidating your debt, you can reduce your total amount of debt, lower your interest rates, and make timely payments on your loan. These factors can all help to improve your credit score.
Q: Are there any fees associated with debt consolidation?
A: Yes, most debt consolidation loans come with fees such as origination fees and application fees. It’s important to read the terms and conditions of any debt consolidation loan before you apply.
Can I still use my credit card after debt consolidation? – Review
Using a HELOC for debt consolidation is a risky strategy, if not managed correctly. Home equity lines of credit should only be used to increase the value of your home. Debt advice and money tips provided by Gillian Goldblatt, award-winning LIT (Licensed Insolvency Trustee) at Spergel. www.spergel.ca
Debt Tips from Gillian:
0:00 HELOC for Debt Consolidation
As a home owner, it can be tempting to use your HELOC for debt consolidation – especially for those big, unexpected, expenses. But any time you use a HELOC you are putting your family’s home at risk. That is because the loan is secured by your house (that’s why it’s called a ‘home equity line of credit’).
Meaning, if you miss too many payments… you could lose your house.
This is why we recommend thinking of your HELOC loan as a renovation loan. If you only use the money you borrow from HELOCs for things that will increase the value of your house (like renovations), then you stand to make money (rather than lose money) from your HELOC debt.
If you are in need of debt relief and are considering home equity lines of credit to consolidate debt, there are other options. One of the debt relief programs created by the government of Canada is called a consumer proposal. It is a popular debt consolidation and bankruptcy alternative that can help with LOC debt and long-term credit repair.
Our Licensed Insolvency Trustees (LITs) at Spergel specialize in personal debt solutions (including consumer proposals) and can help you design a debt repayment plan that works for you without risking your home.
GET OUT OF DEBT: https://www.spergel.ca
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Gillian Goldblatt is a Chartered Professional Accountant and Insolvency and Restructuring Professional. She is also an award-winning LIT (Licensed Insolvency Trustee) and Vice-Chair of the Ontario Association of Insolvency & Restructuring Practitioners Board. As Spergel’s resident expert on debt consolidation and financial literacy, you can find Gillian being interviewed regularly on popular Canadian news programs when she’s not at the office helping individuals and businesses get back on track.
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