How NOT to Use Home Equity Lines of Credit

Using home equity lines of credit can be a great way to get access to the money you need. Home equity lines of credit can be used for a number of great things and can better your financial situation. While home equity lines of credit can be used to better yourself, there are also a few ways to hurt yourself with them as well. Here are a few things that you do not want to use your home equity line of credit for. 


Many banks and lenders will advertise their home equity lines of credit. On these advertisements, they will often say something like "take the vacation of your dreams." While it might be enticing and help them get business, this is not in your best interest. A vacation is something that you do not necessarily have to have. While it is nice, you should not finance it with interest over a number of years. You will be done with the vacation in a week or two. From there, you will have to pay off the balance, which could take many years. Don't finance a week of fun with many future payments.

Consumer Electronics

Another popular way that people use their home equity line of credit is to finance consumer electronics. They will go out to the store and purchase a big screen television or an entire home theater system. While it might provide you with some fun, it is not worth the risk. You should never put your house at risk for something as frivolous as that. Your house is your most valuable asset in many cases. Do not risk it on a big screen TV. 

Day-to-Day Expenses

In addition to making frivolous purchases, you should also stay away from using your HELOC on day-to-day needs. Things like groceries and the electric bill are things that you should be able to afford on your own. If you cannot afford to buy groceries with your income, you probably have some serious financial problems. Instead of racking up a large balance on your home equity line of credit, you would be better served by solving the problem first. Look at the root of the problem instead of putting a bandage on it with the funds from your home equity line of credit. If you do not take action fast, you will use all of the funds from your home equity line of credit. Once those funds are gone, you may not have another way out of trouble.

Student Loans

Many people believe that they will be better off if they pay for school with a home equity line of credit. By doing this, you are gaining nothing as your student loans will be tax deductible as well. If you run into financial trouble, you can postpone the payments with no penalty on your student loans. This option is not available with a home equity line of credit. 


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