Is it wise to open a home equity loan/line of credit to stabilize our finances? – Donald
This is an area where we think you should tread very carefully. On the positive side, home equity loans or lines of credit normally offer attractive interest rates which often are tax deductible. However, too often we’ve seen folks “stabilize” their finances by consolidating debt in a home equity loan or line of credit only to end up months later with both the home equity debt as well as another plate of credit card or other debt. So, if you’re thinking about utilizing home equity make sure that the underlying reason for the debt has been fixed. This usually means making sure you’ve got a rock solid budget and spend less than you earn. However, there are certainly situations where a “one-off event” results in a big chunk of debt that could be advantageously paid off by utilizing your home’s equity. Remember, credit card debt is unsecured whereas home equity debt is secured by your home. The last thing you want to do is put your home at risk in a failed effort to stabilize your finances.