Pros and cons of consolidating payday loans with a HELOC
Have you taken out multiple payday loans and you’re struggling to repay them? Usually, the interest rates on payday loans are quite high that make it difficult for the borrowers to repay them. However, if you have equity in your home, then you can take out a HELOC to consolidate and repay your payday loans. Go through this article to know about HELOC and the pros and cons of using a HELOC for payday loans consolidation.
How a HELOC helps in payday loans consolidation
HELOC (Home Equity Line of Credit) is a type of second mortgage that allows you to borrow money by pledging your home equity. One of the major advantages of taking out a HELOC is that you can borrow amount as and when required until you exceed your available credit limit.
With HELOC, you can borrow the required amount to pay off all your multiple payday loans. Thus, you actually combine and replace your high interest payday loans with a comparatively low interest HELOC.
Pros and cons of paying off debts with HELOC
One of the greatest advantages of taking out a HELOC for payday loans consolidation is that you can qualify for it even with a bad credit record. However, you may not get favorable interest rates if your credit score is not satisfactory.
Read on to know about the pros and cons of consolidating multiple payday loans with the help of a HELOC.
Pros:
- Interest rate: The interest rate on a HELOC is usually low in comparison to that on a consolidation loan.
- Tax deductible: Usually, the interest paid on a second mortgage is tax deductible.
- Single monthly payment: It is quite easier to manage a single monthly payment instead of making multiple payments on your payday loans.
- Harassing creditor/collection calls: You’ll get no more harassing creditor/collection calls as you pay off all your payday loans with a HELOC.
Cons:
- Sufficient equity: You can only borrow the required amount when you have enough equity in your home.
- May lose your home: HELOC is a secured debt, therefore, you may lose your home if you’re not able to pay back the loan on time.
- Additional borrowing: Often borrowers take out more money than what is required to pay off payday loans. So, it may be difficult to repay the borrowed amount on time.
Apart from taking out a HELOC, you can also take the help of a payday loans consolidation program to consolidate and repay your payday loan debts.
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