What are the pros and cons of a equity line of credit?

I am trying to do some debt reconciliation and a friend of mine suggested I checked into a equity line of credit (borrow against the equity built up on my house), is that a good idea??? what are the pros and cons of it, as opposed to just keeping my debt on my credit cards?

What are the pros and cons of a equity line of credit?

Pro is you will probably get a lower interest rate.

Cons are you will have more debt against your home so you could lose your home over what is now unsecured debt.

When you sell your home you have to pay off the HELOC so may not have enough money to buy a new house.

You may start thinking you aren%26#039;t in debt because you only owe on your house and then run the other debt back up again.

The pain of credit card debt helps you learn to stay out of debt. You can pay off the highest rates first to lower your average rate or transfer to zero rate offers if you have good credit. If you don%26#039;t have good credit you are very likely to run the cards back up.

Unsecured debt can be discharged in bankruptcy or the credit card companies may accept less if you get in real trouble but you mortgage is forever.

What are the pros and cons of a equity line of credit?

You only pay interest on the amount you borrow, and as you pay back the principle, the credit is there for you to borrow again. The interest rate will be higher than a straight refinancing, where you can take some of the equity out, but less than most credit cards. Regular refinancing may give you a lower interest rate, but you pay interest on the full amount you take out whether you use it of not. With a line of credit, you make two payments as opposed to only one with refinancing. The two payments combined will be higher than the one.

What are the pros and cons of a equity line of credit?

HELOC interest MAY be deductible on your taxes where revolving credit is not. If you file short form, not much use to you in taxes. It%26#039;s good for home improvements or very short-term loans (like waiting for a big check to clear the bank but needing the funds immediately; in other words, pay it off in a month or two while you wait for funds to clear) HELOCs used for the purpose of paying off credit cards can be useful IF you don%26#039;t just turn around and run them up again. Then you%26#039;ve twice the debt and a second mortgage on your home. If you have the self-discipline to not continue using the cards (cut them up and cancel them!) then it%26#039;s ok assuming you%26#039;re not in an ARM with no limits or very rapid stepping or a high rate of interest even if it%26#039;s fixed. Another thing to consider is paying off the credit cards as rapidly as possible and even discuss with the card holders a reduction in rate. Good luck but think long and hard before using your home equity just to pay off existing debt unless you change your spending habits.