A home equity loan is a major commitment – if you don't make your loan payments, you could lose your house. Be absolutely sure that you can afford to make your loan payments on time every month for as long as you have the loan, and that your loan will improve your life, not just add to your debt.
Good reasons to take out a home equity loan
- Investing in improving your finances – A home equity loan can help you consolidate debts, pay off high-interest credit cards and build or rebuild your credit rating.
- Investing in your home – You can use a loan to increase your home equity by using it for needed home improvements or repairs.
- Investing in your future – Home equity loans can help finance an education or start a business.
Bad reasons to take out a home equity loan
- Spending the money on luxury items – Don’t risk your house to buy that car, boat or expensive trip. Save until you can afford it.
- Using the money for day-to-day expenses – If you’re spending more than you’re earning day after day, a loan will only delay the “day of reckoning.” Try to find ways to cut your expenses instead. A credit counselor can help.
- Give the money to a friend or relative – Remember, it’s your house that’s on the line. Don’t let a friend or relative pressure you to take out a loan for them. If they don’t pay you back, they lose nothing – but you could lose your home.
If you're thinking about taking out a home equity loan as a last resort to get out of serious financial trouble, DON'T. Chances are, you'll just run up your debt again and will soon be just as bad off as you are today, and possibly lose your home as well. Get help instead! A credit counselor in your community can help you improve your finances at little or no cost to you.
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