Should You Use Your Greensboro Home’s Equity To Deal With a Debt Dilemma?

Be careful how you use your Greensboro home equity

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Now that the real estate market has recovered, many Greensboro homeowners finally see a growth in equity in their homes. As a result, for the first time in a while, more consumers may be able to set up a HELOC (home equity line of credit). But is this something you should use to clear up credit cards, medical bills, student loans, and other debt?

Tapping the equity in your home is a big decision that could have major consequences if you find yourself unable to make the payments. Here is what you need to know and how bankruptcy can help you deal with an unaffordable HELOC.

How Home Equity Has Changed in the Last Few Years 

During the real estate bust several years ago, many were upside down on their homes meaning they owed more on their home than the market value. This is a situation of negative equity. However, the hoped-for scenario is that your home is worth more than your mortgage. With the Greensboro real estate market now booming, positive equity is now what’s expected. With positive equity comes the opportunity to put that equity to work for you, but that might not be the best approach.

Things You Should Avoid Using a HELOC to Cover:

#1 Buying a car

Auto loan interest rates, so long as you have decent credit, should be cheaper (or as cheap) as HELOC interest rates. Even with a higher interest rate, an auto loan is preferable for several reasons. First, an auto loan is secured by a lien on the vehicle. If you default on the loan, they take the car. If you finance a car with a HELOC and default on those payments, you can lose your Greensboro home. If using a HELOC is the only way to afford a car, you should stop, reassess and reconsider your actions before you put your home at risk.

#2 Paying for your kid’s college

You want your kids to get the best start and college can get them there, but borrowing against the equity in your home to send them there is likely a mistake. Federal student loans come with lower interest than a HELOC. Having your student borrow to pay their way through college doesn’t mean you can’t help out. You can help cover other expenses or even help them pay off the loans after they graduate. The equity in your home is an important part of your retirement nest egg and shouldn’t be risked when there are options available.

#3 Clearing out credit card debt

While the interest rate on a HELOC is much lower than credit card interest rates, in most cases, this is not a good idea unless it’s a short-term situation. For instance, if you’re due a big bonus in six months, moving your card balances to the HELOC and then paying off might not be bad. But if you pay off your cards with a HELOC, your home is at risk plus you might be tempted to start charging again and wind up in even greater debt. It may be better to deal with your credit card debt some other way and leave your equity intact and your home protected.

#4 Travel and luxury purposes

Some Greensboro consumers use their home equity lines of credit to pay for big ticket items like a dream vacation or big-ticket items like a boat or other purchase.

What a HELOC Is Good For …

In its inception, home equity lines of credit were most often used for home improvement. When utilizing a HELOC for adding onto your Greensboro home or otherwise improving it, you would take on debt, but should also see an increase in equity because of the work financed by the line of credit. In this way, you were less likely to put your home at risk with this debt.

The good news is with North Carolina bankruptcy, you might be able to strip off a HELOC you cannot afford. With Chapter 13 bankruptcy, any portion of a home equity line that is not supported by equity can be reclassified as unsecured debt, and you should be able to pay much less on the debt.

To find out more about how stripping off a second mortgage or HELOC works in bankruptcy, contact the Law Offices of John T. Orcutt. Call +1-833-627-0115 now to schedule a free Greensboro bankruptcy consultation today.