Smart Ways to Use a Home Equity Line of Credit

Just like other types of debt, home equity lines of credit can be good or bad for your finances, depending on how you use them. Here are five ways you can put them to work for you:

Stay within your means.

This is the rule that governs all the others. No matter what you do with your home equity line of credit, don't borrow more than you can afford to repay. When you pay for things with your HELOC, you're putting your house on the line.

Save big on taxes.

The interest you pay on your HELOC is usually tax deductible, which can save you big money over the years.

Consolidate high-interest debt.

HELOCs often have interest rates that are lower than personal loans or credit cards. If you're trying to get out of debt, this could be one way to pay less interest (and be able to deduct the interest you do pay).

Watch out! If you haven't beat the spending habits that helped you get into debt in the first place, consolidation is not a good idea for you. Many well-intentioned people have used their HELOC to pay off credit cards, then simply run up the credit cards again. That's a road you don't want to go down.

Improve your home.

This is one of the classic reasons to have an HELOC. Renovation can be expensive, and your HELOC can help you raise your home's value even if you don't have thousands of extra dollars on hand.

Fund your education.

If going back to school means you'll be able to earn more money, it's worth considering your HELOC as a source of funding. Just be sure to compare your HELOC interest rate with the current interest rates for federal student loans.

Make This Work for You ...in 15 minutes or less  Calculate how large a HELOC payment you could reasonably handle  Resolve to stay within that number ...in 1 hour or less  Compare current HELOC interest rates with your credit card interest rates,       student loan rates, and any other debts you might want to consolidate ...in the long run  Set down a few rules for how you are and aren't willing to use a HELOC

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