Harvard University

5 Ways to Spend the Proceeds of Your Home Equity Loan

Once you receive your one-time lump sum from your home equity loan, you may run the risk of being in more debt once you mismanage the cash in your hands. Worse, you may be paying only the interest but missing out on the payments for the principal. That's why it is important to use your money in expenses that will give a good return. Here are some suggestions:

Spend on: Home Remodeling

Do not Think About: Vacation

By the time home values ​​have rebounded and you decide your house to place in the market, your home's appraised value can increase with the recent improvement. That's aside from being able to use the remodeling or extension for years; you're money has not gone down the drain at all. It's not much of a priority these days to spend so much for something that's temporary like vacations. Resist booking your trip to Miami and spend your cash wisely.

Spend on: College Tuition Fees

Do not Think About: Debt Consolidation

Unless you are 100 percent sure that your reformed spending habits will cause an absolute turnaround in your credit card bill, never make the mistake of bundling your debts in the hopes of averting higher interest in your balances. Besides, you can never secure an even lower interest rate in the first place. On the other hand, spending it on your daughter who's away in college is a wiser investment. The University of Chicago's Booth School of Business currently costs $ 97,165 for tuition and fees while a Harvard University diploma costs $ 101,660.

Spend on: Another Property

Do not Think About: Presents during holidays , etc.

You can eliminate the costs of private insurance on your next property purchase that is, if your purpose of obtaining a loan is for another investment. Other savings that may come from buying another property include possible lower interest rate and tax deductions. One bad habit of those who avail of home equity loans is that they use a portion of the amount to buy their families with presents. There's an immediate need in American families to spend for things, mostly unnecessary, just to celebrate the holidays. In the end, they end up using a large part or the entire loan to these gifts instead of spending the proceeds wisely.

Spend on: Retirement Programs

Do not Think About: Cars

Just because you've received a hefty amount from your lender does not mean you'll be using that as downpayment for an SUV or a slick sedan. Unless there is a pressing need for it, you may consider a second-hand unit. Today's low gasoline prices are forecasted to bounce back and you may sell the car in a few months. Instead, why not think about financial security by the time you're 65? Starting early with your contributions will obviously give you higher amounts of benefit.

Spend on: Small Business

Do not Think About: Lavish celebrations

Sure, you're wedding day should be memorable but more couples have found innovative solutions to hold receptions in practical ways. Good planners use their savings and not the money from their home equity loan. During downbeat economic conditions like today, laid off workers are growing interested on starting small businesses whether they be the mom-and-pop type or marketing the products online. Because the business is still in its infancy, there is little risk from suffering huge losses. It's more fulfilling to watch your garaged-based shop develop into a medium enterprise rather than a video of a single night's party.

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