A home equity line of credit (or HELOC) is a common form of borrowing that basically allows people to tap the equity they have built up in their homes. This money can then be used to deal with emergency expenses or to pay off already existing debt. While a home equity loan can be a conveniently accessible form of cash, its misuse can often get you into trouble relatively easily. Here are three ways that you can smartly use a home equity loan.

Renovations

Home renovations such as repairs or expansions can be a fantastic way of using a home equity loan. This is true for a couple of reasons. First, it may be the only way to get access to the cash that you need in order to make these expensive improvements. Second, using a home equity loan for these purposes will directly impact the ultimate value of the residence, making it easier to sell and increasing the amount of money you will realize on that sale. Just be sure you have a good grasp of all your expenses. When planning a home renovation, make sure you plan for small costs in your budget that can really add up.

Pay Off High-Interest Debt

Credit card debt is an all-too-common fact of life for many Americans. With far too many people trying to find new ways to eliminate the problem, this might be the most common reason to use home equity. A home equity loan will almost certainly have a lower interest rate than the debt you carry on your credit cards. In addition, you may also be able to arrange more favorable repayment terms so that you reduce your monthly costs and still get rid of your credit card debt faster.

Paying for College or Eliminating Student Loans

Many Americans have found that taking out a home equity loan is a great way to afford the costs of college tuition for their children. Younger adults have realized that taking out a home equity loan to eliminate student loan debt can relieve them of a paralyzing burden. Since interest rates on home equity loans are often quite reasonable and they're spread out over a long term, making these payments is often a more attractive option.

Home equity loans can be great tools as long as you use them intelligently. There are various situations in which the use of one is appropriate and financially prudent. Before you make a final decision, consult a financial advisor about the right course of action for you and your family.

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