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It’s no secret that debt is a big problem for many families so it is important to learn Ways a Home Equity Loan Can Help Homeowners Manage Debt.
Between mortgages, car payments, student loans, and credit cards, the average Canadian’s personal debt sits at $73,532.
But it’s important to remember that not all of this debt is equally bad: getting a mortgage so you can own your own house one day is a smart investment, just as getting a college or university degree opens up more lucrative career paths.
What matters isn’t how much debt you have (though that is important, too), but what kind of debt you have.
Unfortunately, many of us have large amounts of high-interest, unsecured debt that is simply a drain on our resources.
This blog will explore one important way ordinary homeowners can turn this bad debt into manageable debt using home equity.
Home Equity can Help Consolidate Debt
Once you’ve taken on a certain amount of debt, it tends to multiply faster than you can pay it off: there are so many payments to make to so many creditors, it can be hard to get back on track if you fall behind for a month.
This is why some homeowners choose to get a home equity loan to consolidate a lot of smaller unsecured debts.
If you’re sick of juggling a dozen different payments every month, one of the benefits of a home equity loan is that you can streamline the whole process into a single payment at a lower interest rate.
Replace Unsecured with Secured Debt
Making a down payment on a house and paying your mortgage every month means that over time, the percentage of your home that you own goes up.
If you owe $350,000 on your mortgage but your house is worth $600,000, you have $250,000 of equity built up.
When you take out a home equity loan, you are essentially borrowing against this value, and because you are securing the loan with an asset, you can usually get a much lower interest rate.
Instead of paying 19% on credit card debt, you could be paying single-digit interest on a home equity loan, helping you retire the debt a lot faster.
Fund Renovations and Repairs with Low-Interest Loans
Home equity loans are also useful if you have major home repairs on the horizon.
If your roof is starting to leak, or you know you’re going to need to install a new septic tank, a home equity loan can help you cover those costs so you don’t have to take out a line of credit or put the expenses on a credit card.
Managing debt is one of the biggest challenges modern families face, and the last thing anyone wants is to get stuck paying huge amounts of interest and never really seeing the principle go down.
If you have a mortgage, a home equity loan may be your ticket off the hamster wheel, so you can get your finances on track and reach your debt-free future sooner.