Debra Booher & Associates Co., LPA
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Using home equity loans to pay credit card debt

Many Ohio residents suffer financial distress due to high credit card balances and other forms of unsecured debt. High interest rates normally accompany the credit card balances or personal loans, leaving the borrower with repayment terms that damage the monthly budget.

To obtain relief, some choose to consolidate their unsecured debt through a home equity loan. Borrowers will consolidate unsecured debts into a type of second mortgage on their home, paying off the high-interest debt in exchange for a second mortgage at a lower interest rate and longer payment terms.

Many have alleviated budgetary problems through the use of home equity loans; however, such a loan does have drawbacks. By using the equity in the home, the borrower has converted unsecured debt to debt secured by the homestead. In most cases, creditors cannot seek to use equity in a personal residence for an unsecured debt. Borrowers can lose their homes if they fail to repay the home equity loan.

Secondly, the time to repay the home equity loan is far longer than when pursuing the bankruptcy option. In a Chapter 7 bankruptcy case, the debt may be forgiven outright without any payment. In a Chapter 13 case, payments may end in three to five years under the Chapter 13 plan.

Before committing to something such as a home equity loan, borrowers in difficult financial straits may want to consult with a bankruptcy attorney. In some cases, a bankruptcy will be far less expensive than a home equity loan. The attorney could assist in performing an analysis of the borrower's financial status and consider all options. With this information in hand, the borrower can then choose the best option for his or her needs.

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