What is a HELOC?

As a homeowner you have an asset, your home. Why is this a good way to consolidate my UK credit card debt?

Many see HELOC as a good way to consolidate their UK credit card debt because, as a secured debt, the interest rate on the loan is much lower than the interest rate they’re currently paying on their existing outstanding unsecured credit card debt. Why is this a bad way to consolidate my UK credit card debt?

There are essentially two principal reasons why HELOC may be considered a bad way to consolidate your debt. The second reason why HELOC are seen as not being a particularly good way to consolidate credit card debt is because, unlike in the past, there are now other alternative methods that credit card debtors can use to try and consolidate and pay off their credit card debt. In short then, HELOC are seen as an extreme measure to a short-term problem.

In most cases credit card debtors use HELOC as a short-term measure to consolidate their credit card debt. Most credit card debtors who consolidate their debt with HELOC financing do not cut up their credit cards, rather, shortly thereafter, the credit card debtor will have run up another line of credit against their credit card.

To repay this line of credit the homeowner will arrange another line of credit against the residual equity in their home. Before long, the home no longer has any residual equity left, the homeowner has a number of loans they need to repay, and another line of credit remains outstanding on their UK credit card.

This type of financial mismanagement is all too easy to do today, but it coffin nail to your long-term financial future, so think long and hard before using a HELOC to consolidate your UK credit card debt.

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