As the cost of living continues to soar, many Americans are turning to their homes as a means of staying afloat. Home equity lines of credit, once tarnished by their role in the 2008 financial crisis, are experiencing a resurgence in popularity. These revolving loans, often used to finance home renovations, are now being leveraged by homeowners to consolidate debt.
For individuals like Rochelle Adamson, a self-employed entrepreneur, using a HELOC to pay off high-interest credit card debt has been a game-changer. By consolidating over $55,000 in debt across seven credit cards, Adamson has been able to reduce her monthly payments and focus on paying down her principal balance.
The rise of HELOCs comes at a time when many homeowners are sitting on record levels of home equity – an average of $315,000, according to CoreLogic. However, this increased wealth is offset by rising consumer debt, with credit card debt alone topping $1.14 trillion nationwide.
Financial experts argue that using a HELOC to consolidate debt can be a savvy move, particularly when compared to the exorbitant interest rates associated with credit cards. With HELOC rates averaging around 9%, many homeowners are finding it easier to manage their debt and make progress on paying off their principal balances.
However, there are risks involved with using a HELOC to pay off debt. Because these loans are secured by one’s home, borrowers who fail to make payments risk losing their property. Additionally, the temptation to overspend or take on additional debt can be a major pitfall.
As such, financial planners recommend exercising caution when considering a HELOC for debt consolidation. It’s essential to have a solid understanding of one’s financial situation and to be committed to living within one’s means.
Despite these risks, many lenders are reporting an uptick in HELOC applications, with some non-bank lenders even offering fixed-rate options specifically designed for debt consolidation. As the cost of living continues to rise, it’s likely that more homeowners will turn to their homes as a means of staying financially afloat.
Leave a Reply