How to Add Debt Cancellation to HELOC

You can finish your debt cancellation by adding any remaining balances or tax obligations to your home equity line of credit (HELOC). You can access the HELOC using personal checks tied to the account. Tapping into the credit line will allow you to pay off debt such as high-interest credit cards and you can also resolve old debt that may have been charged off and sold to a debt collection agency. However, the Federal Trade Commission says you should exercise caution in loading up your HELOC with other debt. The HELOC is tied to the equity in your home and you could lose your home to foreclosure if your default.

Instructions

1

Review your billing statements for outstanding debt, and gather your HELOC statement to determine your available credit. Decide how much debt you want to transfer to your HELOC.

2

Contact the creditors or debt collectors for any old debts that were charged off. Offer to pay in full or offer to settle for less than the full balance through a common process called debt settlement. Try to pay as little as possible through settlement by starting with an unreasonably low opening offer--say 10 percent of the balance--and continuing to negotiate until you have a deal. Note that any money you save through the settlement may be treated by the IRS as income and add to your tax bill.

3

Pay off active accounts still held by creditors by writing checks from your HELOC for the balances. Save some of your HELOC credit limit to help with tax obligations resulting from settlements, if applicable.