If you have equity in your house then you have options available to you to get out of debt that those without equity lack. Equity in your home can be drawn on to pay down debt, or to pay it off in full. In order to get at the equity though, you do have to ask the lender to make it available. The first step in this process is to have an appraisal done so you know exactly how much your home is worth. The amount of value over and above what you owe on your mortgage is considered the equity, and is a valuable asset to have in your possession.
Once you know what your home is worth, you can ask your lender to make an equity line of credit loan. This type of loan acts as a second mortgage on your home and is required to be repaid.
Once you take out a second mortgage, you have two house payments to make each month, so it is imperative to determine if taking the equity is a financially prudent move to make. Here are a few ways you can tell if using equity to pay off debt is best for you:
• If the equity amount is significant compared to what you owe, you can save money by taking the equity and paying off all of your debt at once.
• The interest rate on the home equity loan should not be higher than the interest rates on the debt you intend to repay. If it is, you will not save money by using equity to pay off debt.
• The time it takes to repay an equity loan should not be longer than the amount of time it would take to pay off the debt you intend to use the equity loan for; if so you are not making any financial headway.
If you have already used the equity in your home to pay off debt and are still in financial distress, you can exercise other options to get out of debt. One of those options is to file for bankruptcy, which is a legal way to eliminate debts. In bankruptcy you have the ability to wipe out unsecured debts entirely, or at least reduce the amount you owe.
For more information about how to handle overwhelming debt, contact us at www.DsouzaLegalGroup.com. We will help by coming up with solutions that work for you.