HELOC Loans are Secured Debt

Home equity lines of credit are granted to homeowners who have sufficient home equity available. A HELOC loan is secured on the family home. Failing to keep up with monthly repayments can lead to mortgage foreclosure as the property acts as collateral in the event of default. Although attracting a higher APR, credit card debt is not secured. Should money problems ever become an issue, a consumer can consider a debt solution, such as debt settlement, filing for bankruptcy or a Debt Management Plan.

Credit Card Debt Means Higher Monthly Repayments

As credit card debt isn't secured, default rates are a lot higher than on HELOC loans. For example, Wells Fargo said that default rate on charge cards was 10.03% in April 2009. The Federal Reserve Survey of Consumer Finances in February 2009 stated that the median interest rate on unpaid balances was 12.5%. Home equity lines of credit are available at 8% which would mean that a lower percentage of household income would go towards debt repayments.

Borrow More with a Home Equity Line of Credit (HELOC)

Whilst many consumers are able to get several charge cards, most providers are reducing credit limits. Furthermore, the high interest rate on credit card debt makes them unsuitable for very expensive purchases, especially if over an extended period of time. As HELOC loans are secured on a property, provided sufficient home equity exists, it is possible to borrow a larger sum of money for debt consolidation, home improvements or if buying a car. Monthly repayments are also easier to manage as they are typically just made to one lender.

Prevent Money Problems with a HELOC Loan

Credit card debt should never be seen as a viable source of long term borrowing due to high interest payments. A HELOC loan provides a line of credit at an affordable APR that can be used when ever money problems become an issue. Homeowners could even switch from a repayment to interest-only home equity line of credit to help in terms of affordability.