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5 Things about Home Equity Loans You Must Know

5 Things about Home Equity Loans You Must Know

Home equity loans are unique in the sense that they can help you get excess cash against the value of your home without actually giving your home to anyone else. This option is particularly good for people with bad credit history, low-income level, or if they are of higher age.

Home equity loans have both their positive and negative aspects, but despite this, a lot of people exercise this option. If you want to avail home equity loan in the future or just curious to know more, here are some really great information bits for you:

1. They are good for tax purposes

Home Equity Loans exploded in popularity during the 1990s when there were certain deductions on consumer purchases.

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Interest paid on the home equity loans are tax deductible, therefore, many tax savvy individuals tend to take the second mortgage to save tax on the interest paid on such loans.

2. Interest rate is lower than charge by credit cards

The normal interest rate charged on home equity loans is higher than your first mortgage but it is a lot lower than what you may be paying on a credit card.

You can easily calculate how much it would cost you by using online calculators for home equity loans. Using online calculators can help to do comparison shopping before deciding on which home equity loan provider to choose.

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There are also reviews available online that can help you to make an informed decision on whether to go for a home equity loan or not.

3. They can be great for bad days

It is a fact that we all face financial troubles. Periods of financial insecurity often happen due to bad economic situations, job loss, or other events in our lives.

In bad days, normally people sell out their homes if they fail to pay their mortgage payments. You can easily find local, as well as national buyers of property on cash, who will be ready to buy them at a fair price. For many, it could be a good option to sell the property outright if they have alternative plans, but for many selling their home under difficult conditions may not be the option.

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Home equity loans are best for such people who are in distress and do not want to sell their properties to pay for their genuine needs. Instead of selling a home, it is always a preferred choice to take a second mortgage loan on the same property by leveraging the increase in the value of your home.

4. Home equity loans are good funding sources to pay off legal liabilities

Accidents happen every day, and so do medical emergencies. Instead of engaging a lawyer to fight long cases, you can easily use the proceeds obtained from home equity loans to pay off your lawyers’ fees, and any other legal liability arising due to undesirable events.

Since home equity loans are mostly obtained by people at the later stage of their lives, and it is normally paid off when the borrower dies, therefore, most of the times such loans are used to pay for medical and other emergency expenses.

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In the UK, there was also a trend where parents took home equity loans to help their kids to pay for down payment on their own first home.

5. Fixed vs Line

Home equity loans can be availed either as the fixed loans or as credit lines. Fixed loans are paid in each amount in one go and you cannot redraw it. However, in the case of a credit line, you get a sort of overdraft limit where you can draw and redraw the amounts when you desire.

Credit lines are especially good if you are willing to use home equity loans for paying the college expenses of your children, or even for your recurring medical expenses.

Featured photo credit: Guarantee Bank via gbankmo.com

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Adnan Manzoor

Data Analyst & Life Coach

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Last Updated on April 3, 2019

How to Nix Your Credit Card Debt in Less Than 3 Years

How to Nix Your Credit Card Debt in Less Than 3 Years

Debt is never a fun thing to be in. But, there are many actions that you can take that will help you rid yourself of the burden of debt once and for all.

By coming up with a set plan, eliminating your debt can feel much easier than constantly thinking about it.

This post will provide some tips on how you can do this to help you nix your credit card debt in less than 3 years.

Hint: there are ways that are easier than you think.

1. Consider Consolidating Multiple Credit Cards If Possible

This may not be applicable to you, but if you have multiple cards – it is something to consider. Keeping up with multiple bills is time consuming.

It will depend on the balance you have on each. Consolidate ones you can but do not do it to the point that you get too close to the maximum limit. Also, it is ideal to pick the card with the lower interest rate.

Consider if there are any fees or alternatively, rewards, with transferring a balance to another card. Watch out for fees. Note that some cards offer rewards for transferring a balance to them. This is extra cash that can help go towards paying off your debt.

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Having one or two cards can make nixing your debt much simpler than keeping up with the balance of a bunch of cards. Keeping track of paying the minimum towards a bunch of cards is time consuming. Spend the time to consolidate instead to make the overall process simpler going forward.

My tip: Have one main credit card. Have a second one that you use for necessities – such as groceries or gas – that offers rewards for those purchases (a lot of cards do) and set the second one on auto-pay. You should be able to pay off a smaller amount on auto-pay if it is a necessity. If you think you cannot, then you may need to cut down a lot on expenses.

Why do I suggest doing this? Having one thing set to auto-pay is one less thing to think about. One less thing to waste time on. Same idea with consolidating to one main card. Tracking down too many is a hassle.

2. Try to Pay the Full Balance You Spent Each Month at the Very Least

You need to pay off the amount you are spending each month when that bill comes in. This is the amount you spent THAT month.

Do not let the debt keep accruing while you work on paying any unpaid debt that has accrued. It will become a never-ending battle. Try as best as you can to be current on paying for each month’s expenses when that month’s bill comes out.

If this is a strain, consider why. You may need to cut expenses. Or you may need to consider other cards. Or look at where this money is going.

3. Pay Extra When You Can – Every Small Amount Counts

This cannot be emphasized enough. If you are looking at a lot of credit card debt, it can look daunting, but each extra amount that you can put towards the debt will really add up – no matter how small it is.

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It does not just reduce the principal amount that you have left to pay off, but it reduces the amount that is collecting interest. You will always save money with that reduced interest.

4. Create a Plan on How to Pay Extra

Back to the main point, having this plan is giving you one less thing to think about.

This plan should be a plan that works for you. If it does not work for you, your spending habits, and your views on debt, then it will not be an effective plan.

For instance, if a set plan of an extra $50 (or another amount that you know you can afford) works for you, then do that. Set that aside every month and pay that extra amount. Treat it like a bill. Choose an amount that works for you and pay it like clockwork as though it was a bill you had to pay each month.

Little amounts will not nix it entirely, but they will help tackle it and having a set plan can make it less of a chore. Creating a new plan of how much to put towards it each month is an unnecessary added stress.

5. Cut out Costs for Services You Do Not Use

If you are signed up for subscriptions that you do not use because of some free trial or for some other reason, cut it out. Your overall financial position will look better.

In turn, that will make cutting your credit card debt easier. Look at your statements to find these expenses. If you do not use them, you may forget you are paying some unnecessary amount each month. Cutting it out can really add up in savings that you can put towards other needed expenses.

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6. Get Aggressive About It

Consider these points:

Depending on the interest and the level of debt, you may need to give up a few indulgences. For example, instead of ordering delivery or going out to eat, cook at home. Everything adds up.

Other things may be more of a sacrifice. It may be a trip you wanted to go on, or a daily latte habit you’ve picked up. In these instances, consider how important it is to you and if it’s worth the sacrifice. And if it is a costly expense, think whether you can wait to indulge.

Cutting an extravagant expense can really help make a dent in your overall debt. Try not to add to debt when you are trying to pay it off. It will be a never-ending battle. Make it less of a battle with these tips and it will feel easier.

Bottom line: Do what you can to make this process easier for you. Implement steps that do this. It takes time now, but will help overall. Also, keep track of your spending and paying down of your debts. Which is the next point.

7. Reevaluate Your Progress at Set Intervals

Doing a regular check-in can help you see your efforts pay off or maybe indicate that you need to give this a bit more effort. If you check every 3-6 months, it will not feel so much like a chore or feel so daunting.

By doing this, you will be able to better understand your progress and perhaps readjust your plan. Bonus: if you see it pay off, it will feel great to do this check-in. You will get there.

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Finally (and most importantly)…

8. Keep Trying

Do not get discouraged. Pushing it off will make it worse. Just keep trying.

Once your debt becomes lower, each monthly payment will reduce the balance more. Why? You are paying less towards interest. It will be a snowball effect eventually and it will become much easier to manage. Just get to that point. And know once you do, it will feel easier and motivating.

Start Knocking out Your Debt Today

The best way to eliminate debt is to get started right away. Begin by implementing the above steps and watch your debt just melt away. Try out some of the above strategies and see what works best for you. Soon you’ll be on your way to a debt free life.

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Featured photo credit: Pexels via pexels.com

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