Using A Line Of Credit For Other Loans?

If you're currently making payments on credit cards or other types of unsecured loans, a line of credit may be an option to helping you simplify your personal finances. If you are a homeowner, you may be eligible to apply for a home equity line of credit that can be used for almost any purpose that you choose. One of the most common uses for a home equity line of credit is the consolidation of higher rate credit cards and unsecured loans.

Using a Line of Credit to Pay Off Existing Loans

If you qualify for a home equity line of credit, you'll be able to use proceeds from the line of credit to quickly pay off high interest credit card balances as well as other types of unsecured loans. If you used credit to purchase expensive appliances or electronic equipment, you may be paying a higher than average interest rates on those credit purchases. Therefore, a line of credit based on the equity in your home can help you and save money on interest payments and also help you better manage your monthly payment obligations.

Besides using a line of credit to help reduce interest rates, using a line of credit to pay off other credit cards and unsecured loans will also offer you the convenience of making a single monthly payment - that is as long as you don't begin running up credit card balances again or taking out additional unsecured loans.

Other Line of Credit Considerations

Besides a home equity line of credit, you may be eligible for personal lines of credit as well - if you have good or excellent credit. Many times, banks will make debt consolidation loans debt that will serve as a line of credit to pay off existing credit card accounts and other unsecured loans. While these types of loans don't offer the flexible withdrawal methods and repayment terms that a home-equity line of credit does, they can be effective in helping you reduce interest rate charges and also offer the same convenience of making a single payment to a single creditor.

Dangers of a Line of Credit

While a line of credit can definitely help you get control of your finances, and will often save you money on interest charges as well as combine multiple payments into a single payment, you should be aware that a line of credit should not be used as a stop gap measure to simply clear multiple sources of debt so that run them up again.

In fact, some lenders may require that you refrain from applying for other types of unsecured credit while you are making payments on a line of credit used to pay off existing credit cards and loans. While this type of restriction is not usually involved with a home-equity line of credit, many banks that provide debt consolidation loans will ask you to promise not to apply for new loans.

Therefore, if you're considering a line of credit to use in paying down high interest credit card accounts or other unsecured loans, you should carefully evaluate if the loan will truly help you financially not only in the short term but in the long-term as well.

If it is your intention to simply pay down multiple credit card debts so that you can begin to make purchases with the credit card in the future, you might want to consider avoiding a line of credit altogether. While a line of credit can help save you money in the beginning, if you add additional unsecured payment obligations – payments may reach a level than you cannot afford. Also, getting a second line of credit will usually prove to be very difficult or even impossible.