Are Home Equity Line of Credits Good to Pay Off Debts?

Memphis Bankruptcy, Social Security Disability & Long Term Disability Attorney

HELOCs: Better than Bankruptcy for Debt Relief?

Although home equity lines of credit (HELOC) may seem like a reasonable solution, they can be deceiving. Bankruptcy may offer a better solution than home equity lines of credit. Between dealing with interest rates and large amounts of debt, actually paying off what you owe may take a long time or seem very difficult. 

John Dunlap is an experienced attorney who is well versed in bankruptcy. Call today for a free 30 minute session to discuss why bankruptcy might be a better option than HELOC for your financial situation. 

What is a home equity line of credit?

A HELOC is a revolving line of credit that can function the way a credit card does. It uses the equity of your home as a lump sum that can be borrowed, known as a home equity loan. You can borrow against the equity of your home and pay it back to creditors. 

Much like a line of credit, you can borrow what you need as long as it does not exceed the agreed upon maximum line of credit. For many homeowners, a HELOC allows them to borrow as often as needed, which may seem promising. However, HELOC may result in individuals paying more money in the end or losing their home in the process.

Home equity credit should be used with caution, especially if you’re using a HELOC to pay off other debts because of financial strain. Learning the risks of a HELOC is an important step. 

Can I lose my home from a HELOC?

There may be serious risks if you default on your payments because home equity lines of credit use your home as collateral. If you default on your home equity line of credit, you may lose your home to foreclosure. 

It is tempting to think that taking out a HELOC on a home is a solution to pay back credit card debts or medical expenses. However, if you are already behind on payments and over your head in debt, HELOC may not be for you. It can leave you still in debt and without a home. 

HELOCs Create more Debt

Home equity lines might give the idea of having more money but that’s not actually the case. Although you may have a large amount of equity in your home that you have access to, a HELOC puts you deeper in debt. If you are granted a home equity line, you must pay back creditors for the HELOC on top of the other debts you owe. 

Additionally, what many creditors may not tell you is that you will end up paying for your mortgage and the HELOC at the same time. Because a HELOC is like an additional mortgage, it doesn’t take the place of the first mortgage. Instead it just adds to the amount of money that you owe. That could mean that you end up paying even more money back with twice the bills.

Is bankruptcy better than HELOC? 

Don’t let creditors trap you into paying more money while believing you’re getting rid of your debt. Bankruptcy has the potential to allow you to keep your home while paying off your other debts. Depending on the bankruptcy option that you and your attorney choose, you can pay back some or all of your debts owed over a period of time. In some cases, the bankruptcy court may let you make lower payments in a 3-5 year period through a Chapter 13. 

Additionally, unlike HELOC, bankruptcy may allow you to wipe out some of your debts. Depending on your bankruptcy case, some debts that you owe may be wiped out in Chapter 7. Bankruptcy also may give you the opportunity to build back your credit score. On the other hand, defaulting on a HELOC could be equivalent to maxing out all of your credit cards and damage your credit score. 

Bankruptcy attorneys also deal with paperwork and creditors on your behalf. Don’t let creditors take advantage of you through home equity lines of credit. John Dunlap may be able to help. Call today for a free 30 minute session to see how bankruptcy may be a better option for you.