Monthly payments on multiple high-interest debts can be demoralizing and expensive. When you pay thousands of dollars of interest each year on credit card debt, private student loans and car payments, you may feel like you will never get out of debt.
Consolidating high-interest debt with a home equity loan can be a good way to reduce monthly payments and eliminate your debt faster. If you own a home and have built up significant equity in it, you could be a good candidate for this type of loan, which you can use to pay off your high-interest debts. That leaves you with one monthly payment, which usually has a lower interest rate than the smaller debts.
A home equity loan allows homeowners to borrow money and use the equity in their home as collateral. Home equity is calculated by subtracting remaining mortgage payments from the current market value of the home, and homeowners build home equity by making monthly mortgage payments toward the debt’s principal. Home value appreciation also creates home equity.