Using a Home Equity Line of Credit to Pay for Christmas

I used to work for a financial agency that specialized in providing a home equity line of credit (also known as a HELOC) for those that felt that they needed them. When I was working for this company, probably the single most common reason that I would hear people give for getting one of these was so that they could consolidate their debts and help to pay off overdue Christmas loans or bills. Unfortunately, what many people may not have realized is that doing this can be a fairly risky proposition.

Just because using a HELOC is a popular choice to pay for Christmas or credit-card bills doesn't mean that it is a good one, and there is a reason for that. Basically what you are doing is in effect putting your home on the line for collateral on one loan only to repay smaller loans or bills. This may not seem like a problem (due to the fact that so many people do it), but frankly it is never a good idea to take one loan out to pay for another. When you are going to be dealing with another loan, you don't want to have to deal with something that can be as variable or unstable as the vast majority of HELOC's can be.

If you really are determined to use a home equity line of credit to pay for your Christmas bills or credit card bills, then there are a few things that you should keep in mind prior to signing anything.

• Shop. Not all HELOCs are created equal. Many different banks and lending institutions are going to have different terms, limits, and conditions available for any of their loans. As with any type of loan, you are going to want to shop around and compare before you are deciding to get any type of loan.
• Commit. As with any financial decision, a loan is a commitment. Be positive that you are going to be able to fully commit to meeting the requirements of your new loan. In order to do this, you are going to need to commit as fully as possible to paying this back as quickly as possible.
• Smaller is better. Unlike most things in life, smaller is actually better in the instances of a HELOC. Smaller monthly payments, smaller amount borrowed, and a smaller time to be able to repay it. When getting a HELOC, only borrow as little as you actually need. Repay it as quickly as possible, and try to go for the smallest possible payments so that it doesn't adversely affect the rest of your finances.