In many of today’s households, money is tight. With decreasing median family incomes and increasing prices on consumer goods, some people struggle to support themselves financially. If you fall into this ever growing category of people, you may be considering taking out a home equity loan. Just don’t tap your house’s line of equity to do any of these things.
Purchase an Automobile
From the moment you drive your shiny new car out of the dealership, it begins to lose value. Because of this instant depreciation, you should never finance an automobile for a long period of time; much less use your home equity for the purchase. By the time you finish paying for your car, it could be worthless. You certainly don’t want to risk losing the equity in your home in order to finance a car purchase. In fact, paying cash for a new car is optimal. However, if you can’t afford to do that, shop for an affordable car loan at your local financial institutions. Don’t forget to check both banks and credit unions.
Finance a Vacation
With multiple family and career responsibilities to deal with on a daily basis, most of us are drooling at the thought of an exotic getaway. If you need a break from reality, make sure to pay for it with cash. If you don’t go the cash route, you still should not finance your vacation with a home equity loan. Unless you don’t mind paying for your short excursion for years, a home equity loan isn’t the way to go.
For someone buried under a mound of debt, any form of debt consolidation is often tempting. However, unless you are 100 percent committed to becoming debt free, you should never use a home equity loan as a vehicle to consolidate your debts. If you go this route and don’t change your spending habits, you can lose your home and all of your other purchases too. Instead, look into debt consolidation loans or other programs.
Fund Unnecessary Home Remodeling Projects
If you plan to sell your home in the near future and must make some repairs, a home equity loan might be a good option for you. However, if you simply want to complete some upgrades around your house, using cash is your best alternative. This is especially important to consider when the home remodeling projects will not add significant value to your home. Some projects, like adding an in-ground pool, often even lose money. If you won’t be able to recoup your investment, don’t go with a home equity loan.
Pay for Your Child’s College Tuition
For some families, college tuition is an overwhelming expense. Student loans can carry an extremely high interest rate, which can make it tempting to foot the bill with a home equity loan. However, depending on your circumstances, this decision is probably unwise. For example, if you are older and still owe a significant amount of money on your home, you should probably concentrate on paying down your current debt instead of accumulating more. Look at it this way, some people feel that allowing children to pay for their own tuition will teach them personal responsibility and financial discipline.
While home equity loans can prove beneficial in many instances, they shouldn’t be your go-to source of money. Whenever possible, just use cash or even a less risky line of credit instead.