Almost half of all Canadian families under the age of 65 are currently holding on to credit card debt. While it is convenient to use credit cards to make your purchases, it is not advisable to use credit cards as a means of holding debt. There are better options available.
A Home Equity Loan is a much better option for families that are looking to improve their finances. To that end, this article outlines 10 great reasons to transfer your credit card debt to a home equity loan.
Furthermore, we will provide you with links to some great educational content and online tools that you can use to help improve your finances.
Now, let's go through some great reasons to clean up your finances...
1 - Lower Interest Rates/Save on Interest Charges
Lower interest rates are, by far, the most compelling argument for transferring your debt to a home equity loan.
Interest rates on credit cards typically range between 19% and 21%. What's worse is that if you miss a few payments in a row, you are considered delinquent and you will be charged up to 28%!
Home Equity Loans offer significantly lower interest rates compared to credit cards. Just look at this example:
- Jamie has $45,000 in credit card debt. This debt is currently costing a minimum of $10,600/year and will take years to pay off
- Jamie could transfer to a home equity loan and pay down the same amount of debt by paying out just $5,600 - a savings of $5,000!
2 - Lower Minimum Payments
Jamie can save so much because here interest payments are lower and because home equity loans are typically interest only. In the example above, Jamie's minimum payments are just $3,950!.
This leads us to our next benefit...
3 - Flexibility
As we mentioned previously, home equity loans are typically interest only. This means that you can decide to pay down more of your debt, reduce your monthly payments, or some combination of the two.
This keeps your payment options flexible and allows you more options to adjust your payments in the future, should the need arise.
4 - Faster Debt Reduction
We don't recommend that you reduce your payments too much though, as this reduces one of the primary benefits of transferring your credit card debt to a home equity loan: faster debt reduction.
- Lower interest rates mean that more of your payments can go to your principal, instead of into the bank's coffers
- If you were to keep the same monthly payments with your new home equity loan, you would reduce your debt by 60%-80% in five years. This compares to just 20% if you are making minimum credit card payments.
5 - Simplicity
Consolidating your debt into a single home equity loan makes paying your bills much simpler. This saves you time, stress and, more importantly, makes you less likely to miss a payment.
You can even set up automatic payments from your bank account, ensuring that you are never late on a payment. This helps with the next reason...
6 - Improved Credit Score
Transferring your debt to a home equity loan helps to improve your credit score in a few ways:
- Lower interest rates let you pay down your debt more quickly. This lowers your debt burden, which raises your credit score. Note, however, that you might want to keep your credit cards, even after you have transferred your debt. Unused credit counts positively towards your credit score.
- Simplified payments make you less likely to miss a payment. Payment history accounts for around a third of your credit score. Missed payments count against your credit rating and a consistent run of payments made will improve your credit
7 - Better Than a Personal Loan
Home equity loans are secured debt - they are backed by the equity of your home. As such, they are viewed as safer investments from a lender's perspective, which means you will get a lower interest rate, compared to an unsecured debt (all else being equal).
They are also much more flexible in terms of your income and credit rating.
8 - Better Than Transferring to Another Credit Card
One tactic to reduce your average interest rate is to transfer your debt to your credit card with the lowest interest rate. There can be drawbacks with this, however:
- At best, you will only reduce your interest rate by a couple of percentage points. It's nice, but it's not going to make a large difference in the end
- It is common practice for companies to charge you a fee when you transfer your credit card debt. This fee will likely offset any savings in interest payment
9 - Customized Reports Available
Curious about how much you can save exactly?
You can get information on free, customized debt consolidation options reports by clicking here.
Alternatively you can simply click here to fill out the information for you own report right now.
10 - Easy Online Application
Obligation free applications can be done online from the comfort of your home. It only takes a minute of your time.
Apply Online. It's quick, easy, and you are under no obligation!
If you are interested in debt consolidation and other related topics and would like to learn more, feel free to check out some of our other educational content: