2-Minute Money Manager: Should We Use a Home Equity Loan to Pay Off Credit Cards?

Couple w Computer
Photo by Iakov Filimonov / Shutterstock.com

Welcome to the “2-Minute Money Manager,” a short video feature answering money questions submitted by readers and viewers.

Today’s question is about debt; specifically, whether it’s a good idea to use a home equity loan to pay off credit cards and other bills.

Watch the following video and you’ll pick up some valuable info. Or, if you prefer, scroll down to read the full transcript and find out what I said.

You also can learn how to send in a question of your own below.

For more information, check out “8 Guaranteed Ways to Get Rid of Debt Fast” and “Ready to Tackle Your Debt? 12 Tips to Find Free or Cheap Help.” You can also go to the search at the top of this page, put in the word “debt” and find plenty of information on just about everything relating to this topic.

And if you need anything from a better credit card to a better mortgage, be sure and visit our Solutions Center.

Got a question of your own to ask? Scroll down past the transcript.

Don’t want to watch? Here’s what I said in the video

Welcome to the “2-Minute Money Manager.” I’m your host, Stacy Johnson, and this two-minute answer is brought to you by MoneyTalksNews.com, serving up the best in personal finance news and advice since 1991.

Let’s get to today’s question. It’s from “Anonymous”:

Currently, we have $24,000 in credit card debt and $38,000 in car debt. Should we use our home equity to pay our bills since rates are so low? My husband’s afraid to do anything.

You know what, Anonymous? I’m a little afraid for you too. Why do you have so much credit card debt?

I’ve got three things for you:

Thing No. 1: Ways to borrow against your home

There are two ways to borrow against your home equity. The first is a home equity loan, which is essentially a second mortgage. As with your first mortgage, you’re borrowing a fixed amount of money, then making a fixed payment monthly at a fixed interest rate. When you make the last payment, the debt is paid off and the loan is over.

Another option is a home equity line of credit, also known as a HELOC. This type of loan is more like a credit card. You’re borrowing as little or as much as you want, up to your approved limit, then paying it back over time. As with a credit card, the interest rate can change, you’re only paying interest on the amount you’ve borrowed and it ends whenever you choose to close it.

Which is best? It depends on whether you need a flexible line of credit or a big lump sum, as well as other factors like how long you’ll need to pay it back and whether interest rates are rising or falling.

Thing No. 2: ‘Buy a blouse, lose a house’

There’s an old expression in the credit-counseling industry: “Buy a blouse, lose a house.” It refers to the fact that home equity loans are secured by the roof over your head.

When you’ve got credit card debt, it’s unsecured. In other words, there’s very little a credit card company can do to squeeze that money out of you. Granted, the company can sue you, but you can file bankruptcy and theoretically avoid paying the debt.

On the other hand, when you secure a debt with your house, you’re betting the roof over your head that you’ll be able to pay that money back. If you can’t, you could end up sleeping in your car.

In short, you want to be exceedingly careful when you take out home equity loans. Don’t even think of borrowing against your home until you’ve addressed whatever issues caused the debt.

In other words, it’s one thing if you’ve got credit card debt because you’ve had a layoff, an illness or some other one-time, unforeseen circumstance that’s now over. But if you’re continually spending more than you’re making and living above your means, all you’re accomplishing with additional borrowing is postponing a disaster. Have your spending well in hand before borrowing to consolidate debt.

You might also consider alternatives to home equity loans. For example, you might find a zero percent credit card that you can transfer your balances to and pay no interest for up to 18 months. Just be sure you’ll be able to pay it off before that introductory rate goes away. You can check out some zero percent cards here.

Thing No. 3: If you’re having trouble, get some free help

If you’re in trouble, or would just like some free advice, turn to a nonprofit credit-counseling agency. For little or no cost, the agency will stand between you and your creditors, work out a payment plan, and get you completely out of credit card debt in three or four years. Is it easy? No. But it’s definitely better than staring at the ceiling all night and getting threatening calls from collection agencies all day.

If you’re ready to talk to one, click here. It won’t cost you a dime.

Got a question you’d like answered?

You can ask a question simply by hitting “reply” to our email newsletter, just as you would with any email in your inbox. If you’re not subscribed, fix that right now by clicking here. It’s free, only takes a few seconds and will get you valuable information every day!

The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.

About me

I founded Money Talks News in 1991. I’m a CPA, and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.

Got any words of wisdom you can offer on today’s question? Share your knowledge and experiences on our Facebook page. And if you find this information useful, please share it!

How to find cheaper car insurance in minutes

Getting a better deal on car insurance doesn't have to be hard. You can have The Zebra, an insurance comparison site compare quotes in just a few minutes and find you the best rates. Consumers save an average of $368 per year, according to the site, so if you're ready to secure your new rate, get started now.

Read Next
The 14 Most Deadly Car Models
The 14 Most Deadly Car Models

These vehicles are involved in fatal accidents at least twice as often as the average car.

7 Kitchen Gadgets That Make Healthy Cooking a Breeze
7 Kitchen Gadgets That Make Healthy Cooking a Breeze

These small appliances and cooking aids make healthy eating easy — and they’re all available on Amazon.

14 Uses for WD-40 That Save Money, Time or Headaches
14 Uses for WD-40 That Save Money, Time or Headaches

WD-40 is handy in a lot more situations than you likely realize.

5 Memberships That Offer Car Insurance Discounts
5 Memberships That Offer Car Insurance Discounts

These discounts may save you hundreds — even thousands — of dollars a year.

3 Ways to Get Paid for Searching the Web
3 Ways to Get Paid for Searching the Web

If you’re already doing it anyway, why not get rewarded for it? Here are three great opportunities.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
Will I Get My Ex-Husband’s Social Security When He Dies?
Will I Get My Ex-Husband’s Social Security When He Dies?

Two factors determine how much money is coming to you.

7 Ways to Boost Your Credit Score Fast
7 Ways to Boost Your Credit Score Fast

Your financial security might soon depend upon the strength of your credit score.

21 Things You Should Always Buy at a Dollar Store
21 Things You Should Always Buy at a Dollar Store

Dollar stores have great bargains on these familiar purchases. Yes, even pregnancy tests

5 Household Disinfectants That Can Destroy the Coronavirus
5 Household Disinfectants That Can Destroy the Coronavirus

You likely already have some of these products at home.

6 Reasons I Will Never Trust Suze Orman
6 Reasons I Will Never Trust Suze Orman

Beware: The self-proclaimed personal finance expert has a track record that suggests more sizzle than steak.

13 Brilliant Bulk-Buy Items on Amazon
13 Brilliant Bulk-Buy Items on Amazon

Every household should have these products on hand. Buying them in bulk on Amazon saves you cash.

20 Things That Are Actually Worth Stockpiling
20 Things That Are Actually Worth Stockpiling

You probably don’t need a year’s supply of toilet paper to survive an outbreak, but consider stocking up on these items.

America’s Most Reliable Appliance Brand Is a Surprise
America’s Most Reliable Appliance Brand Is a Surprise

Have you heard of this appliance manufacturer?

This Type of Social Security Benefit Is Often Overlooked
This Type of Social Security Benefit Is Often Overlooked

The Social Security Administration is not helping certain people get money to which they are entitled, a report says.

Getting These 2 Shots Could Reduce Your Risk of Dementia
Getting These 2 Shots Could Reduce Your Risk of Dementia

These vaccines may lower the risk of Alzheimer’s disease by up to 40%.

9 Everyday Problems You Can Solve With Vaseline
9 Everyday Problems You Can Solve With Vaseline

Forget expensive specialty products. Good ol’ petroleum jelly can address many common annoyances.

16 Amazon Purchases That We Are Loving Right Now
16 Amazon Purchases That We Are Loving Right Now

These practical products make everyday life a little easier.

8 Things That Are Free in August
8 Things That Are Free in August

As summer enters the home stretch, we’ve rounded up these sizzling freebies.

19 Purchases That Buyers Almost Always Regret
19 Purchases That Buyers Almost Always Regret

Think twice before buying these things.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

These jobs pay more than the typical job in the U.S. — and no bachelor’s degree is required.

7 Tips for Building an Emergency Stockpile
7 Tips for Building an Emergency Stockpile

A pandemic or natural disaster could leave you reliant on your existing food supply. Is your pantry prepared?

8 of the Worst Things to Buy at a Dollar Store
8 of the Worst Things to Buy at a Dollar Store

Not everything sold at dollar stores is a great bargain or a safe purchase. Here’s our list of products to avoid.

41 Things You Should Never Buy
41 Things You Should Never Buy

Some purchases are just plain dumb. Give yourself — and your budget — a break. Don’t spend money on this stuff.

Homeowners Say These 2 Kitchen Appliance Brands Are Best
Homeowners Say These 2 Kitchen Appliance Brands Are Best

One brand takes five of the top honors, while another ranks highest in three categories.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.