Debt Management Techniques

Once you have decided to use your home to finance and pay off your debt, you may be tempted, as some are, to take such a large, suddenly available amount of cash and use it to partially pay off your debts (possibly including paycheck advances) and then to also fund other things you want. Or, if a lender offers you more than you need to pay off your debt, you might consider taking the full amount, paying off your debt completely and then using the extra for other things. Both of these are not good ideas and may be financially risky, leaving you in worse financial shape than you were in before you applied for the home equity loan.

Make a Budget Before You Get the Loan

If you are having trouble with debts and considering using your home to finance it, it shouldn't be too difficult to plan in advance of applying for a home equity loan, exactly what you will use the loan for if you are approved. Setting up a budget of exactly what debts you will pay off and in what order is often helpful for staying on track for getting out of debt. For some people, it helps to actually call their creditors and get a specific payoff amount (not necessarily the balance due on your account) for the day when they expect to have the home equity line disbursed to them. Write down the exact amounts and the phone numbers you can call to make the payment over the phone. Once you receive the money, go down the list, in order, calling them (or mailing off the checks) and pay all of the debts off until you are free and clear then stop.

Don't Borrow More From your Home than You Need

Beyond a little padding, you should know in advance how much you need to pay off your debts and request that amount and no more. The temptation to overspend on this new debt and not really solve your problem with your home equity line will be tremendous and is more than many people can handle. For more help with financing, look over some of the frequently asked questions relating to home equity financing.