What is your opinion of home equity loans to pay off credit card debt?

You really have two issues to address. First, you need to figure out a way to pay down your current debt. Second, and most importantly, you need to make behavior and/or lifestyle changes to make sure your credit card spending is limited to a level you can afford. (This does not mean simply being able to afford the minimum payment.) If you don't change your spending habits, you will most likely end up right back in the same predicament within two years. And thanks to your home equity loan you will have more debt and fewer assets.

Keep in mind that the equity in your home is one of your most valuable assets. It's a nest egg that provides financial security for your future. And when you tap into it, you reduce your assets. What if the unthinkable happens and you have trouble paying your bills again? What if you have a financial emergency and are short on money? If you default on a home equity loan you risk losing your home. Credit card companies cannot foreclose on your home, but home equity lenders can because the loan is secured by your home.

Generally speaking, a home equity loan would restructure your existing debt over more years at a lower interest rate. Over the term of the loan, you'll end up paying much more in interest. Also, you may be required by your lender to pay Private Mortgage Insurance (PMI) if you have not paid off at least 20 percent of the home's appraised value. So you may never get rid of PMI if you don't maintain sufficient equity.

Do you have the financial resources to quickly pay back what you borrow in a home equity loan? Do you have enough money in the bank for financial emergencies? Are you disciplined enough to live within your means? If the answer to all three questions isn't yes, think twice about taking on that home equity loan!

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