How Much Home Equity Do You Need to Consolidate Your Debt?
Many home owners today are turning to home equity loans for debt consolidation since they may often carry lower interest rates than other lines of credit. Securing a home equity loan may also help finance unexpected life events and expenses. If you have equity in your home, you may qualify to use home equity in order to consolidate your debt and pay a lower interest rate on one monthly payment. If you are interested in using a home equity loan for debt consolidation, there are a few steps to take before you start.
First, you should understand exactly how debt consolidation merges your financial obligations. A debt consolidation loan may be used to pay down your credit cards, auto loan and miscellaneous debt you want consolidated into one monthly payment at a fixed low interest rate. However, consider the fact that although your monthly payments may be lower, you may end up paying more in interest over the life of the loan if the term is longer1.
In order to qualify for a home equity loan, you must first have enough equity since you'll be borrowing against the value of your home.
Before you begin to contact creditors, gather all of the latest statements, bills and loans you want to consolidate. You will want to know how much you owe, the APR you're currently paying and whether you pay more than the minimum amount each month. Below are suggested statements and bills to consider including:
- Auto loans
- Credit cards
- Personal loans
- Other equity loans
After you're finished compiling all of the information and statements, use a debt consolidation calculator to help figure out your total debt, how long it will take to pay it off and your potential savings with debt consolidation. Discover's debt consolidation calculator is a free tool to aid people in calculating how much they need to consolidate their debt. Although helpful, these calculators do not take the place of a financial planner.