Using Your HELOC to Pay off Seasonal Expenses


It’s true—different times of the year cost more money. For example, we all know that during the holiday season the expenses can add up really fast. Last year, the average cost for a tree, gifts and a Christmas dinner was expected to be a whopping $1,779. With that kind of price tag, it’s no surprise that Americans have an average of $986 in holiday debt rolling into the new year, which usually takes over five months to pay off. 

There are other financially demanding seasons of the year, with events like weddings, funerals, births and other expenses popping up, some planned, some not. How do people fund these expenses? Are credit cards or high interest loans the only options to cover these costs?  The obvious disadvantage to using either of those is that you could end up owing a significant amount in interest charges—in addition to the initial amount you borrowed.

However, there can be some real advantages to using a home equity line of credit (HELOC) to cover some of those costs. As you look into using a HELOC to pay off seasonal expenses, we’ve compiled a few tips to consider:

1) Benefits of a HELOC—The biggest benefit of a HELOC compared to other types of loans is the lower interest rates. Because HELOCs are secured by your home, their interest rates are significantly lower than credit cards; this could save you a substantial amount of money in the long run. 

Another benefit of HELOCs may be the tax-deductible interest. Of course, you would have to talk with your tax adviser to see if your particular situation would allow you to qualify for this benefit, but it’s definitely worth looking into.

2) Consolidating debt—Let’s say you have multiple loans and/or credit card debt. A good way to use your HELOC would be to consolidate your debt into one monthly payment. This can be especially useful to those that may have difficulty keeping up with the various payment due dates on multiple loans. Another reason to consider a home equity line of credit would be if the interest paid on the debt is higher than the HELOC rate and you would like to decrease the amount you pay on interest. 

Remember, when you use a HELOC to consolidate your debt, your home secures the line of credit. With careful planning, a HELOC can be a great resource in lowering your minimum monthly payments and it can save you lots of money in interest charges.

3) Careful spending—Don’t spend more than you normally would if you did not have a HELOC. Of course, this is difficult to plan for with unexpected costs, but as a general rule of thumb, it’s better not to spend more than what is in your means.

Whatever your financial situation is, and whatever upcoming expenses you may have, we’re here to help. 

The information provided is meant for general informational purposes only and does not constitute tax, business or legal advice.

Sources:

http://www.bankrate.com/finance/home-equity/reasons-to-use-home-equity-6.aspx

https://www.nerdwallet.com/blog/credit-cards/smart-heloc-consolidate-credit-card-debt/

http://www.thesimpledollar.com/cost-of-christmas-2015/

http://www.magnifymoney.com/blog/pay-down-my-debt/holiday-debt-survey