For many years, the idea of tapping the equity in your home was financially smart when looking to make home improvements or fund a college education. Consumers now rely on Home Equity loans to make large purchases (to buy new vehicles, for instance) and consolidate higher interest debt such as unsecured loans and credit cards.

Although, initially this is a sound way of managing debt, some sources claim that the equity in your home should be left as your nest egg. According to Dorothy Rosen in a recent bankrate.com article, using a Home Equity loan to consolidate debt could have a negative impact on your finances.

• When people use debt to payoff debt, they often do not change their spending habits resulting in further debt.

• When the terms of a Home Equity loan are stretched over a long period of time, the consumer could actually end up paying more.

• When a Home Equity loan is used to finance debt, you can risk foreclosure on your home in the event of financial difficulties.

As long as you realize that your debt is simply transferred and not actually paid off, a Home Equity loan can be a financial benefit.

• Interest paid on a Home Equity loan is generally tax deductible (consult a tax advisor for determination).

• Interest rates on Home Equity loans are much lower than rates on most credit cards, making it possible to shorten the term of payback.

• In some cases, where multiple debts are combined, your new payment may actually be less than the combined total of each payment.

When you get set to refinance, you’ll want to find the right type of Home Equity loan and set a goal for when you want your debt paid off. Use your new-found credit card freedom wisely by not spending more than you make and putting a little aside each pay period in a “rainy day” savings account.

Need help deciding what’s best for your finances? Contact the Credit Union for more information about Home Equity loans and the benefits of consolidating debt.