How to Pay Off a Home Equity Line of Credit

Home equity lines of credit have become quite popular. You can borrow whenever you need money and deduct the interest on your income taxes. However, this debt can become a burden, especially when the interest rate increases (see Reference 1). Make paying off your home equity line of credit a priority so that your financial future becomes more secure. If you plan carefully and allocate your money properly, you can get out from under this burden of debt.

Instructions

1

Make certain that your home equity line of credit (HELOC) does not carry a pre-payment penalty. If you do not know, contact your lender.

2

Make a list of all your loans, including credit card debt, your HELOC and other consumer loans. "Making the Most of Your Money Now" author Jane Bryant Quinn suggests writing down the interest rate, lender and debt amount. Quinn says you should pay off the debt with the highest interest first, usually credit card debt. Tackle your HELOC only when higher cost debt has been retired.

3

Cut your regular spending and put the savings on your HELOC every month. You will need discipline, but you can cut back on optional expenses in every category, such as dining out, fancy groceries, entertainment, cable, phone and clothing. You do not need to cut any category to zero. Eat out less often, use coupons and shop in your closet. Switch to antenna TV or basic cable. Finance author Ric Edelman calls nearly all expenses optional (see Reference 2.). Choose where you can cut back and put the savings on your line of credit each month.

4

Locate money to make a large lump-sum payment to reduce your home equity line of credit debt. Jane Bryant Quinn suggests selling stocks, taking money out of savings or hosting a yard sale. You could also sell larger items such as excess furniture, a camper or a second or third car. Put the proceeds on your debt. Quinn does not recommend jeopardizing your future by taking money from retirement accounts (see Reference 2.).

5

Use your income tax return, bonus or other windfalls to help pay down your line of credit. If you feel deprived, spend a small portion to reward your progress. But put most of the windfall on your debt.

6

Keep yourself motivated by charting your progress and displaying it in a prominent place, as Quinn suggests (see Reference 2). If you stay disciplined, you can pay off your home equity line of credit completely.