Is Debt Relief Through a Home Equity Loan the Right Answer?

As the economy continues in a downward sliding pattern that has been prevalent over the past decade, many homeowners are struggling to realize their dream of homeownership and living debt free; a dream all Americans and everybody for that matter desires. And as millions of people struggle to make their monthly payments on time due to a number factors, such as rising fuel costs, the cost of food, and home values plunging at alarming rates, many people find themselves neck deep in debt, and are avidly seeking one form of debt relief or another.

What is the best method for a home owner to find debt relief?
You have to take several things into consideration when faced with this dilemma, before formulating a true debt relief plan that may work for your situation. Some questions that immediately come to mind are: how much unsecured (credit card and charge card) debt do you have? How much is your home worth, and have you paid into it enough to be able to borrow against some of the existing equity and find true debt relief? What are the minimum payments on your charge/credit cards and would it even make sense to find debt relief through a conventional home equity loan? Finally, is your credit score and current income sufficient enough to get approved for a home equity loan?

Do you have enough equity?
The first step is to take a look at your home and see how much equity that you truly have. A good way to easily find out and get a rough idea is by talking with a trusted loan professional and asking them to ask their appraiser —where you can easily find out roughly what your home is currently worth and how much other homes in your area are currently selling for. Once you have an idea of what your home is worth then you can see if there are any options that may exists with you taking out a home equity loan.

Keep in mind that it only makes sense to take out a home equity loan if you have enough equity, and if you will not be maxing the equity out in your home. A good rule of thumb is that you always want to leave at least ten to fifteen percent equity remaining in your home, this way you can try and sell the home should you experience any life changing events such as losing your job or becoming disabled. Secondly, you need to weigh your options. Is there enough equity—while leaving some room to spare—to take out a second home mortgage and pay off all of your existing unsecured debts into one, lower interest monthly payment?

The first step
To figure this all out and assure that it is truly worthwhile, tally up all of your unsecured debts and figure out what the monthly payment is, and how long it would take you to pay them off if you just paid the minimum payment. Then figure out how much interest you would be paying over the course of the repayment period. Get few home equity loan quotes so you can get an idea of what your monthly payment would be and how much interest you would be repaying over the course of those loans.

Generally a home equity loan will have more favorable repayment terms and a lower interest rate, which generally translates into a lower monthly payment and true debt relief. Another thing to keep in mind is that your home will gain value, which makes taking out a home equity loan to pay off existing debts more worthwhile because you can earn more equity in your home the longer that you own it.