As the cost of living continues to rise, many Americans are turning to their homes as a source of financial relief. The use of home equity lines of credit (HELOCs) is on the rise, with more homeowners tapping into this resource to pay down debt and manage their finances.
At Extreme Investor Network, we understand the importance of utilizing all available financial tools to stay afloat in challenging times. HELOCs have traditionally been used for home renovation projects, but in recent years, we are seeing more applications for debt consolidation. Rochelle Adamson, a self-employed individual, consolidated over $55,000 of debt across seven credit cards with a HELOC on a rental property, highlighting the convenience and seriousness of using this financial tool.
Despite record levels of home equity, many homeowners are struggling with high levels of consumer debt. The average household has about $35 trillion of equity in their homes, yet credit card debt and auto loan debt continue to rise. This is where HELOCs can be beneficial, especially for consolidating high-interest debt into a lower-rate loan over an extended period.
While using a HELOC for debt consolidation may seem like a straightforward decision, there are important considerations to keep in mind. HELOCs can carry fixed or floating rates, typically tied to the prime rate plus a spread. The immediate adjustment of interest rates after a Fed rate change makes HELOCs a flexible option for those looking to save on interest payments, especially compared to the average credit card interest rate of over 21%.
At Extreme Investor Network, we emphasize the importance of using financial tools wisely and responsibly. Before taking out a HELOC for debt consolidation, it’s crucial to assess your ability to manage the credit line and avoid overspending. Financial planner Gerika Espinosa highlights the importance of containment and responsible management when using HELOCs for debt consolidation.
While HELOC use is on the rise, lenders have implemented more conservative lending terms to mitigate risk. Achieve, a non-bank lender, began offering fixed-rate HELOCs for debt consolidation in 2019, providing customers with a safer option for managing their debt. As long as borrowers employ reasonable underwriting standards, the risk to consumers is minimal.
At Extreme Investor Network, we offer valuable insights and resources to help you make informed financial decisions. Whether you’re considering a HELOC for debt consolidation or exploring other financial options, we provide the information and tools you need to navigate the complex world of finance. Visit our website for real estate and housing market news, reports, and analysis to inform your investing decisions, as well as more information and tools to help you handle your finances effectively.