Consolidating mortgage and line of credit

There are several advantages of a HELOC over loans.

You can use money from a HELOC for anything you want, and you only have to repay amounts you borrow.

Please note that debt which is not considered origination debt typically is not tax deductible.

Debt counselors say that even if a HELOC is a viable solution to your debt problem, it’s still a good idea to examine how and why you acquired so much debt in the first place.

You can easily do that by consulting with a certified nonprofit credit counselor, and a consultation is usually free.

HELOCs tend to come with lower closing costs than traditional mortgages and home equity loans. HELOCs typically come with adjustable, not fixed interest rates, according to the Consumer Financial Protection Bureau, so if interest rates rise, the rate on the HELOC will rise, disrupting your budget.

The adjustable rates come with caps on how much the rate may rise over the life of the loan, but these may not provide much protection if they’re high, Kinane said.

Debt settlement companies ask you to stop paying your creditors and send the money to the settlement company instead, which can harm your credit rating Typically, a credit counselor will start by sizing up your financial picture, what money is coming in and what’s going out, and what led to the debt.

“If you’ve had a job loss and temporarily had to rely on credit cards to get through your unemployment, that’s one thing,” said Mary Ellen Kaluza, a certified financial counselor at LSS Financial Counseling, part of Lutheran Social Service of Minnesota, a nationwide credit counseling firm.

“Debt consolidation and home renovation are the two biggest reasons that consumers would take out a home equity line of credit,” Mike Kinane, senior vice president of consumer lending at New Jersey-based TD Bank, told Lending Tree.

But credit counselors caution that a home equity line of credit, or HELOC, may not be your best option, because it expands your total credit and may tempt you to keep overspending.

Certification is important because it sets standards of expertise and ethics in credit counseling.

The Federal Trade Commission warns about similar-sounding “debt settlement companies,” for-profit entities that may not be able to settle your debt.

A HELOC will help with the immediate problem of overspending, but if you run up credit card balances again, you’ll have credit card bills on top of a HELOC balance. A credit counselor will help you understand all of your options.

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