How would we function without them? They make our life easier. Thanks to them, we are recognized and people trust us. Even abroad. No wonder we use them a lot, even a little too much sometimes. I am referring to our faithful companions, credit cards, of course.
• Read also: Opening your mortgage before maturity, can it be advantageous?
Unfortunately, one day or another, a painful situation can arise. Are payment deadlines, which always arrive a little too quickly, strangling you financially? If yes, what to do ?
Should I use the value of my home (“equity”) to settle my debts, you ask? Although it is common to do so, the answer to this question requires thought. Let’s first look at how to assess fairness and what it costs to use it.
About “fairness”
Over time, your home has gained value. In addition, you have repaid part of the capital initially borrowed. This is what constitutes “equity”. It is calculated as follows:
- Market value of property — mortgage balance = equity.
By refinancing your home or taking out a home equity line of credit, you will normally have access to 80% of the market value — mortgage balance to pay off your credit cards or invest in an apartment building.
However, you will leave some feathers in the process:
- Appraisal fees to establish the market value of the house if you want to get the maximum value.
- Notary fees if you do not have an option with your loan to re-borrow at the initial value.
- Bank charges for prepayment. The institution may decide not to charge you however.
Is it worth the cost? Do the math.
Before taking action
I suggest you reflect on your behavior as a consumer. Because equity is not a bottomless pit from which you can constantly draw sums to get out of trouble.
Generally, it is used to undertake a new project, make an investment such as the purchase of a rental property, help a loved one, carry out urgent work… If you use it constantly to pay your cards of credit and do not curb your consumption, your equity will melt like snow in the sun.
In conclusion
Credit card payment difficulties can be symptomatic of overspending.
Is it repetitive? If so, a question arises: are you living beyond your means? Certainly, you can use your equity to pay off your credit cards. No problem. But maybe you should consider reducing your consumption. Or, at the very least, plan it better. Because if you plug a breach while the boat is leaking from all sides, you will find yourself in the water once more in no time.
TIPS
- Use your financial institution’s financial planning services, it’s free.
- If necessary, put your credit cards away for a while to avoid using them.
