When working to consolidate and eliminate debt, consumers have a few different options. Two options that are available to homeowners are home equity loans and home equity lines of credit. As long as a homeowner has built enough equity in their home, they may want to consider using this equity to consolidate other high interest debts.

What Is a Home Equity Loan?

A home equity loan is also commonly referred to as a second mortgage. When obtaining a home equity loan, a consumer is borrowing a portion of the equity they have built in their home. Because these loans are secured by the borrower’s house, they are much easier to get than unsecured personal loans.

Home equity loans are also offered at lower interest rates than many personal loans. Even if a person has bad credit, they may be able to get a home equity loan. The only problem is that if a person can no longer afford their payments, they could possibly lose their home.

The Differences Between Home Equity Loans and Home Equity Lines of Credit

A home equity line of credit is an open line of credit secured by the equity in a borrower’s home. A consumer will be able to borrow up to a certain amount, repay the debt, and then borrow the amount again. A home equity line of credit is similar to a credit card, since it is a type of revolving debt.

These loans are another good way for homeowners to consolidate their high interest credit cards. Because the loan is secured with the borrower’s home, consumers are able to get competitive interest rates. Unfortunately, just as with a home equity loan, if a borrower cannot make their payments, they will risk losing their home.

Consumers that are struggling to pay their bills have many different debt relief options to choose from. Homeowners may open an equity line of credit, obtain a home equity loan, consolidate their debt into a new credit card, or seek the help of a non profit debt consolidation company. To make the most beneficial decision, consumers must evaluate each option and determine which would be the most beneficial.