When you pay down the mortgage, you get more equity over your home. This leaves you enough space to get HELOC. In some cases, it is better to avoid this crediting type and go for alternatives. These are the situations in which it is better to avoid it.
When should you avoid HELOC?
- Never pay your vacation with HELOC. Although the low interest might trick you into borrowing money for cheaper, this means that you spend more than you can afford. And you don’t want to risk your home for a vacation.
- Don’t buy depreciating assets like a car. While a HELOC might seem a better solution than a car loan, avoid it at all costs. If you encounter financial problems, you only get to lose your car with a car loan.
- Don’t pay off accumulated credit card debt with HELOC. For some, it might sound reasonable to close the high-interest credit card debt with cheaper interest rates. Instead of consolidating your credit card debt, make sure to check your spendings and improve your money management skills.
- Don’t pay for college. Rely on student loans for that purpose.
While HELOC is tempting because of low interest and availability, it might trick you into accumulating debt. What do you think?