Coastal Equities Finance Tips 101: Using Home Equity to Eradicate Bad Debt

Equity to Release in Your Home
Equity to Release in Your Home

Find out how you can use your home’s equity to get rid of all your bad debt in this edition of Coastal Equities Finance Tips 101.

Tags: Coastal Equities Finance

The average American carries over $20k in bad debt. This can be from credit cards or merchant and store accounts. Basically, unsecured debt is bad debt because there’s nothing to back it up with. If you default on the payments, the debt becomes toxic, rarely ever paid off or fully recouped.

Unsecured debt carries a very high interest rate because of the high risk rate to the lender. Therefore, it usually follows you around for quite some time. If you own your own home and have plenty of equity, there’s a simple and straightforward solution that we’ll explain how to use in this edition of Coastal Equities Finance.

Assess Your Debt

Use a spreadsheet and carefully list out each credit account and the amount owed. Next, tag the interest rate and the minimum monthly payment. Factor what that payment is combined for all of your debts each month. Chances are it’s a sizeable monthly encumbrance. Now move on to step two.

Access Your Equity

Take out a home equity loan that’s locked in at a low interest rate to pay off all your bad debt with. Get rid of all that debt in one foul swoop with a lower interest and longer term, secured loan. Not only will your credit score skyrocket, but you will save thousands per year in interest and fees, too.

That aside, you will have also consolidated your payments into one easier monthly payment as opposed to many of them. When you compare the interest rate on a HELCO (equity) loan to a credit card, there is NO comparison. It’s just smart debt reduction tactics that can help you enjoy a debt-free existence.

Do You Have Equity to Release in Your Home?

Equity to Release in Your Home
Equity to Release in Your Home

If you own your own home and do not have a mortgage outstanding, or the loan you are paying is small compared to the current value of your home, the answer is an almost certain, resounding YES. There are several methods with which you are able to release the equity in your property, and different methods will suit different individuals and their circumstances. Always seek professional advice to obtain the latest news, the best scheme, and the one which is right for you.

What Is Latest the Equity Release News?

The latest equity release news is that over the next 25 to 30 years, some 400,000 people will retire, given current trends and forecasts with varying levels of mortgage debt. After taking potential inflation and other factors into account, it is projected that they will have an average of £52,446 outstanding on their mortgages. These figures were recently published by The Equity Release Council, and although they are not guaranteed, the research is always based on current trends, historical data, and financial projection models.

But mortgages aren’t the only debt these individuals are likely to have; credit cards, outstanding loans and hire purchase will haunt them as well. These accumulated figures, facts, and statistics point to expected equity release schemes available likely to expand to take into account changing demographics, increasing values in properties, and the life expectancy projections of an increasingly fitter, healthier, and more mobile population.

How Can Equity Be Released from a Property?

If a property is mortgage free or the outstanding debt is small, a property can be re-mortgaged, thereby releasing the equity in a property and allowing the individuals to remain in their homes. Another method is to downsize if the property is large and will fetch a good price on the market. The sale financing the new property will leave the owner with cash to spare to be used for whatever purposes he may need. This could include paying off outstanding debt such as cards, outstanding loans, and hire purchases. The residual, if not needed to pay off outstanding debt, can be invested in an income-based investment.

Increasing Reliance on Property Assets in Retirement

Perhaps a bit worrisome, more and more people are relying on using their property assets as a means of funding their retirement, certainly in larger numbers than previous generations. Downsizing is increasingly becoming the norm with more people approaching retirement having to sell and vacate their family home of many years. Conversely, with smaller debt it is possible to stay in the family home after financing and being able to pay off any outstanding debt.

With the best planning in the world, it is still possible for finances to go awry. If you are entering or approaching retirement and have outstanding debt and unreleased equity in your property, it is essential you seek professional advice as soon as possible.

Mitigating cost, reducing debt, and easing the burden in retirement years is available today, but make sure the scheme you choose is right for you. Seek professional advice today, and you will not go wrong.

Graham Green is a freelance writer and researcher for several finance-related websites and is constantly researching the latest in news about mortgages, credit news, general finance, and equity release news.

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Do You Have Equity to Release in Your Home?