By: America's Credit Union on February 2nd, 2023
3 Reasons the Best Debt Consolidation Loans are Home Equity Loans
If you are like many homeowners who feel consumer debt has reached a tipping point, securing a home equity loan could prove invaluable. Qualified borrowers who put equity to work often consider these products the best debt consolidation loans, bar none. Although everyone possesses a unique financial portfolio and has different long-term goals, leveraging a portion of your home’s equity can deliver the relief working families deserve. Here are the reasons why America's Credit Union Lending Specialists say using a home equity loan for debt consolidation is a viable option.
1. One Streamlined Payment
While access to credit has certainly improved consumer purchasing power, more than a few Americans struggle with multiple monthly payments. Total consumer debt recently hovered around $15 trillion, with an individual figure topping $92,000. According to Experian’s 2020 Consumer Credit Review, this is what the average consumer debt looks like:
- Credit Card Debt: $5,315
- Personal Loans: $16,458
- Automobile Loans: $19,703
- Student Loan: $38,792
- Mortgage: $208,185
The borrowing associated with these and other debts generally puts increased financial pressure on people to keep pace with interest and fees. Add medical bills and a revenue disruption into the equation, and even frugal people can get behind.
Home equity loans provide a solution to accounts charging a high monthly interest rate. Ranked among the best debt consolidation loans, they offer homeowners the option of bringing wide-reaching consumer debts under one roof. Rather than dole out uneven payments, borrowers pay one reliable amount that improves financial health and well-being every month.
2. Save Money with a Lower Interest Rate
Another reason home equity loan products make the best debt consolidation loans stems from the relatively low-interest rates. Borrowers already either own a home outright or have built up significant equity. The difference between what is owed on a mortgage and fair market value can be leveraged to secure the loan. Local credit unions like America's Credit Union can offer qualified members competitive rates because the debt consolidation loan is backed by collateral.
In terms of saving money, a little-known fact that sometimes gets overlooked is that large credit card corporations may significantly raise the rates. Consumers may get caught off guard if one of the following high-interest triggers occurs:
- The promotional period ends and consumers get charged interest for previous months.
- A late payment triggers an increase in interest along with fees.
Hard credit pulls result in a FICO score dip, triggering higher interest rates.
- Variable APR rises in conjunction with the prime rate.
Similar to credit cards, personal loans may also feature a higher rate because, unlike home equity loans, they are not secured by collateral. Home equity loan products are usually the best option for debt consolidation loans because qualified borrowers typically enjoy lower-rate payments.
3. Lower Monthly Payments
When families compare the best debt consolidation loans, lowering monthly expenses ranks among their primary goals. Multiple personal loans and an overabundance of credit card usage adds up to too many monthly payments. By the time they make the minimum monthly installments, budgets are often stretched thin.
Putting home equity to work by using it to leverage a manageable debt consolidation loan often results in retaining more hard-earned money by lowering interest rates and the number of monthly payments.
When a Home Equity Loan May NOT Be The Best Debt Consolidation Loan For You
It’s important to keep in mind there is no one-size-fits-all loan product to meet everyone’s needs. Although many people consider home equity loan products among the best debt consolidation loans, potential borrowers would be well-served to conduct thorough due diligence. The following may be reasons this particular option may not necessarily help achieve your long-term goals:
- Collateral: Home equity loans are secured by the borrower’s house. If you worry repayment could prove problematic, your home could be at risk.
- House Underwater: Property values plummeted during the sub-prime mortgage crisis, leaving hard-working people with mortgage debt that exceeded home values. Although the real estate market appears robust, a financial crisis could leave borrowers underwater.
- Increased Debt: Once consumer debt has been consolidated, it’s crucial for borrowers to cease any excess spending. Unless these habits are brought under control, the home equity loan could add financial stress.
- Fees: Not every lender works diligently with people to provide the lowest possible rates and minimize fees. That’s largely why members come to America's Credit Union.
If these or other concerns make you hesitant to consolidate debt with a home equity loan, alternatives such as personal loans and transferring balances to high-limit credit cards could suffice. At the end of the day, the best debt consolidation loan depends on your unique financial situation.
How to Decide if a Home Equity Loan is the Best Debt Consolidation Loan For You
If you are among the millions of Americans who struggle with consumer debt, home equity loan products rank among the best debt consolidation loans available today. The proven benefits of lower interest, one streamlined payment, and an overall reduction in monthly expenditures help working families enjoy the quality of life they deserve.
The only way to make sure a home equity loan is the best option for you is to conduct due diligence. For more information on ACU's Home Equity Loan products, please contact ACU today!
Finding the best debt consolidation loans for your unique situation can feel overwhelming, review our "Debt Consolidation: Expectations vs. Reality" complete guide to find the best loan for your needs!
Membership in America’s Credit Union is open to anyone who lives or works in Dallas, Rockwall or Collin Counties, Texas, and their family members. Employees of select employers may also be eligible. See our Membership page for details.