1. Understand Your Equity Potential
Recent data shows U.S. homeowners have an average of $319,000 in home equity, with $207,000 of that being tappable. This is wealth that can be accessed without sacrificing a secure 20% equity stake, giving homeowners a valuable asset to manage debt.
2. Calculate Your Blended Rate
If you have high-interest debt (like credit cards), your “blended rate” may be much higher than you realize. Even with a low mortgage rate, expensive non-mortgage debt can drive up your total average interest costs.
3. Consider Debt Consolidation
Using home equity to consolidate debt allows you to pay off high-interest loans with a single, lower-interest payment. For many, this means switching from 18% credit card rates to rates closer to 7%, saving hundreds in monthly interest.
4. Boost Monthly Cash Flow
By reducing your interest burden, more of each payment goes toward reducing the principal. This strategy can immediately improve your cash flow, leaving more room in your budget for other needs.
For a practical example, check out this video example where a homeowner uses their home equity to pay off high-interest debts. By redirecting the monthly savings back into their mortgage, they’re able to pay it off faster and reduce overall interest payments—building wealth in the process.
5. Simplify Your Payments
Consolidating debt with home equity combines multiple debts into one payment, reducing financial stress and making budgeting easier.
6. Lock in Predictable Payments
Unlike credit cards with fluctuating rates, a home equity loan or cash-out refi has predictable monthly payments, offering stability in your finances.
7. Plan for the Right Timing
While rates are higher now, they may decrease in the future. For some, waiting to tap into home equity until rates fall could be even more beneficial.
By strategically using home equity, homeowners can reduce debt, increase monthly cash flow, and gain greater financial freedom.
