Manage Your Money God’s Way - Reasons you need a budget and why you should NOT use home equity loans

October 24, 2016

Part 1: Creating a budget
A budget is merely a way to tell your money where to go. Everybody has one but you may not be managing it.  Just like everyone has a diet because everybody eats; some people manage their diet and some don’t.
A lot of people think budgets are only for those who have financial issues or those who are experiencing a financial crisis, but a budget is for everybody.
It is a roadmap and a planning tool, which gives you control over your money. Budgets can reduce arguments and improve relationships.  A budget may be the only way you can create an emergency fund or save any money for future needs.
To help you create a budget, check out our blog Ten Steps to Create a Budget that Works on the Compass Catholic website.

Part 2: A Financial Solution is NOT Under Your Roof
Home equity is the value of ownership built up in a home or property. Calculating equity is simple: take the market value of your home and subtract any outstanding mortgages or liens.  The result is your equity.
There are two different ways to use the equity in your home - a Home Equity Loan (otherwise known as a 2nd mortgage) OR a Home Equity Line of Credit (sometimes called a HELOC)
A home equity loan is a one-time lump sum loan that is paid off over a set amount of time, with a fixed interest rate and the same payments each month. Once you get the money, you cannot borrow further from the loan.
A home equity line of credit (HELOC) works more like a credit card. You are allowed to borrow any amount up to a certain limit during a time period set by the lender.
A HELOC has a variable interest rate that fluctuates over the life of the loan. Payments will vary depending on the interest rate and how much credit you have used. When the life span of a line of credit has expired everything must be paid off. A lender may or may not allow a renewal. And just like a credit card, a HELOC usually doesn’t have to be paid off in a certain number of months.
There are major downsides to using HELOCs. They can be a huge temptation to overspend. Just like a credit card, the tendency is to use it too often and use it impulsively rather than spending carefully.
And the biggest problem with a HELOC is that your home is the security for the loan. If you can’t make the payments on a credit card, you’ll receive nasty calls and your credit will be trashed. However, if you can’t make the payments on the home equity loans the lender can foreclose and take your home away from you.
Using either or these loans can jeopardize your financial future if you aren’t careful.

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