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How HELOCs can trap consumers in debt

On Behalf of | Mar 20, 2023 | Loan Modification vs. Bankruptcy

When homeowners run into financial binds, it’s not unusual for them to take out home equity lines of credit. A HELOC is essentially a line of credit that the homeowner can use for whatever they need. 

Because they’re relatively easy to obtain, HELOCs can also end up being a source of financial distress. Consumers can quickly get in over their heads if they’re not careful.  

Variable interest rates can lead to shockingly high payments 

Most HELOCs have variable interest rates. If you’ve paid any attention to how volatile interest rates have been lately, then you know that they can and do rise dramatically. What starts as a manageable payment can quickly morph into a monster debt. 

Even worse, some HELOCs allow borrowers to pay only the interest on their loans for several years. That can come back to haunt a homeowner, however, if their long-term financial plans go awry. When the interest-only period expires, they may go into default and put their home in danger. 

Finally, HELOC payments can turn out to be more expensive in the long run than a consumer’s credit cards. They could be paying off a HELOC for 30 years, long after they would have been done with a credit card bill, and those interest payments really can add up. 

Whether you’re in debt and considering a HELOC or you have a HELOC that you can no longer manage, you may want to explore your options. Loan modifications and bankruptcy can both be viable choices, but it’s important to have legal guidance to determine what is best for you. 

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