Swimming in heavy credit card debt sometimes means getting deeper in debt simply because of high interest rates. The IRS no longer allows credit card interest as a deduction. If you use a home equity loan to consolidate and pay-off your bills, you could actually save cash three ways: 1. No interest accrues on your credit card balances, 2. Your new loan could have a lower interest rate, lowering your monthly mortgage payment, and 3. At the end of the year, three IRS allows you to deduct most if not all of the interest from your mortgage.
One possible glitch in the system is a variable rate loan. If your home equity loan has a higher interest rate, the potential exists you could have more out of pocket expenses than you had before.
While equity loans usually offer a lower interest rate, the closing costs could be higher. And, some lenders could charge a pre-payment penalty, almost forcing you to stay in your home rather than sell if a potential buyer makes an offer.
One way around these restrictions is a home equity line of credit. Those usually dont carry any closing costs, and there usually arent any pre-payment penalties.
If you have extremely...
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