If you’re trying to get out of debt, there are a lot of different strategies that you can use. One strategy is to take out a Home Equity Line Of Credit (HELOC) and pay off your debts with it. This article will give you the how-to on getting started with this plan.
Step 1: Find Out If You’re Eligible
Before you get started, it’s important to know if you’re eligible for a HELOC. There are several different requirements that must be met before your bank will give you one. The amount of equity in your house is an important factor here, as well as the value of your home and your credit score.
First, you need at least 20% equity in your home to qualify for a HELOC. If you don’t have this equity yet, then you should try to save up enough money to buy down that percentage level before getting started on the plan. No matter how much debt you’re trying to pay off, you can’t get to 100% debt free if you don’t have 20% equity in your house.
Second, the value of your home is important when it comes to getting approved for a HELOC. If your home is already worth $200,000 or more, then you should be fine. However, if it’s worth less than that, then there is a chance that your bank will not approve you for a HELOC.
Third, the quality of your credit score is critical when it comes to getting a HELOC. If you have a good credit score of 700 or more, then there’s a very good chance that you’ll be approved for a HELOC. If you have a lower credit score, then you may have to work on repairing your credit score before getting started.
Step 2: Fill Out The Application
Once you know that you’re eligible for a HELOC, it’s time to actually get one. This can be done at most banks and financial institutions, though some institutions may not offer HELOCs. If the bank or financial institution that you want to go to doesn’t offer a HELOC, then you should search for one online.
The first thing that will happen is that you’ll have to fill out an application for the HELOC. While this is happening, they’ll check your credit report and review it with you. If everything looks good, then they’ll send the application off to the underwriters to have them review it. If there are any problems, then they’ll contact you for more information or give you a chance to fix any issues.
Step 3: Wait And See What Happens
Once your HELOC is approved, you’re all done with the serious parts of getting one. However, you still have to wait for the HELOC documents to be sent to you. This can take several weeks, since they have to mail them out or send them over online. Once your HELOC has been mailed to you, it’s time for step four.
Step 4: Pay Off Your Debts With The HELOC
Now that you have your HELOC, it’s time to use it as a tool for paying off your debts. The way you do this is by making monthly payments out of your checking or savings account and into the HELOC. Once the payment has been sent, they’ll transfer money from the HELOC back to your account so that you can continue living and spending money.
It’s important that you don’t just pay off debts in order from smallest to largest. Instead, prioritize them by interest rates so that the highest interest debt is paid off first. This will save you money in the long run and get rid of your debt faster than if you did it some other way. By doing this, you can become 100% debt free within a year or two.
Pros And Cons Of A HELOC
Like all other credit lines, there are pros and cons to using a HELOC as part of your debt repayment plan. These are some of the main advantages and disadvantages that you should be aware of before deciding if this is the right thing for you.
Pros Of A HELOC
A HELOC is a good option for people who have equity in their house. This way, when the HELOC gets used up, you still have your home to live in.
You can get approved for a HELOC with just 20% equity in your home and a 720 credit score. Because of this lower requirement, most people who need a HELOC can get one.
You can use a HELOC to pay off any debts that you owe. This includes credit cards, student loans and even medical bills. Since it doesn’t matter which debt you pay off first with a HELOC, this is very convenient.
Cons Of A HELOC
A HELOC is a subject to market fluctuations. This means that the interest rate can change just like it does with any other kind of credit line.
When you sign up for a HELOC, you’re committing to using around $20,000 or more in it. For this reason, if your financial situation takes a turn for the worse and you can’t afford to pay your bills, you’ll be in trouble.
The interest rate on a HELOC is usually variable. This means that it can change any time, along with the amount of money that you owe. For this reason, some people may consider it risky if they don’t like their payment changing all of the time.
A HELOC is a good option for people who are financially stable and have the ability to repay their debts. However, if you aren’t sure about whether or not you’ll be able to manage your bills, then this isn’t the right choice for you.
How To Use A HELOC
Now that you understand what a HELOC is and how it works, it’s time for step two. This is where you’ll gain the knowledge of what you need to do in order to use a HELOC as part of your debt repayment plan. Here are some steps that you should take if you want to become 100% debt free.