Five Smart Ways To Use Your Home Equity Line of Credit

Using your home equity line of credit to consolidate credit card debt, buy a new car, jet off to that dream holiday or pay college expenses is common place. Some experts attribute the additional buying power afforded consumers through home equity line of credit as a primary reason the nation's economy has been able to emerge from from the recent recession. Yet, aside from simply allowing consumers to spend more, the flexibility and efficiency of a home equity line of credit (HELOC) can provide the financially smart person with the means to make money, save money or simply take advantage of opportune situations he or she might otherwise miss out on. Here are five smart ways to show you how:

#1. Lock In Big Savings - Credit card companies frequently have shopping programs with names like "Main Street Savings" on a 30-day free trial basis. These programs allow you to buy discounted gift cards (20% discount) for major national retailers like Target, Sears, and Home Depot. The flexibility afforded by a home equity line of credit can allow you to purchase -during the free trial period - a large amount of discounted gift cards for major retailers you frequent. Then use these cards instead of cash or credit when you purchase everyday items (The cash you would have spent can be used to pay down the HELOC). Although you pay low interest on the home equity credit line, you receive a front-end discount of 20% on everything bought. When combined with store coupons and sales, you can realize total savings of 70% or more! In short, a HELOC provides the low interest cash availability to take advantage of bargains like this that you might otherwise have to pass on.

#2. Take Advantage of Higher Insurance Deductibles - You probably know that raising deductibles on auto and homeowners insurance policies can mean big savings on insurance premiums. If you increase the deductible on a homeowner's policy from $500 to $1,000, you'll cut your premium by as much as 25%! Yet many people don't do this because they fear they may not have the necessary cash available in the event of a loss. With low-interest cash readily available through a home equity line of credit you'll have the security and confidence you need to raise your deductibles and reap the savings!

#3. Take Advantage of 0% Balance Transfer Offers - 0 APR credit card offering balance transfers for six to eighteen months free credit is an excellent idea if used with discipline. You may be able to take advantage of these offers, if you have a balance on your home equity line of credit. For instance, you can transfer $10,000 from your home equity line of credit balance which has rate of say 5.25%. Should you never use the card, for the next few months, you will only need to pay a monthly minimum credit card payment by writing a check from your home equity line of credit. In the month prior to the expiration of the 0 APR credit card offer, you just pay off the remaining balance with another home equity line of credit check. If you continue to make to continue my regular payment towards the home equity line of credit at the same level, during the 0 APR offer, then it means that more of each went to pay down principal and less went to interest with a net result of not only lowering the principal balance on your home equity line of credit but also a tidy sum of savings in interest and a positive addition to your credit history!

#4. Replace Your 1st Mortgage with your home equity line of credit - If you have more equity than debt and plan to stay in your home for 3 years or less, you should consider replacing your first mortgage with a home equity line of credit. Home equity line of credit are currently available around the country at rates of 4% or lower. Even if rates increase a full percentage point each year, they will still be low when you pay off the loan. Best of all, there are no closing costs with most equity line of credit, so you won't have to worry about recouping them through interest savings as you do with a traditional mortgage refinance.

#5. First Pay With a Rewards Credit Card - If you're contemplating using your home equity line of credit for a major purchase, you should consider whether or not the merchant you are dealing with accepts credit cards. The reason is that it makes a great deal of sense to pay first with a rewards credit card and then pay off the card with your home equity line of credit check. Say you want to make a purchase of $15,000 or more, charge it to your rewards credit card. Say the credit card pays you back by putting 2% of everything charged into a savings plan you will make $300.00 in savings that would have been missed if you paid the bills directly with home equity credit line checks! Whatever rewards credit card you favor, it's sensible to pay first with the card whenever possible. Keep in mind, though, you must promptly pay off the balance and not incur finance charges as this will offset any savings you make.

See also:

TEN Features of a good Home-Equity Line of Credit

Home Loan Lenders