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Can You Still Get Help, Clear Debt with a Home Equity Loan?

By Nathaniel Hutchinson Business and Financial Expert


The struggling job market has caused thousands to lose their homes, and many others have accumulated significant credit card debt trying to stay out of foreclosure. In the past, homeowners used their houses to fund debt consolidation loans that offered an escape from economic hardship. Unfortunately, declining property values have worked against this strategy, and many are left wondering if they can still get help, clear debt and acquire reduced interest rates by getting a home equity loan.

Declining values make it harder to get help

According to S&P/Case Shiller's most recent index, home values continue to decline, thanks mostly to the poor economy. The index is based on the average home value in 20 metropolitan areas; however, home values are low most everywhere across the country, with some exceptions sprinkled in here and there.

Standard & Poor’s Index Committee chairman, David Blitzer blamed the continued decline on negative consumer attitudes and predicted that a stronger economy was needed to feed a sustained recovery.

In the old days, homeowners used home equity loan mortgages, mortgage refinance and other debt relief strategies to combat financial troubles. Unfortunately, if your property's value has declined to the point where you don't have much equity, you can't employ these strategies.

Can I get a home equity loan to clear my debt?

Though Blitzer's assessment is partly accurate, much of the blame for descending property values is owed to the fresh batch of foreclosures that is moving out of the court system and into the housing market. As these cheap homes add to the already-rich inventory of affordable housing, property values are inevitably pushed downward.

Though this is happening all over the country, there are many cities that are doing just fine. Local economic conditions have the most impact on property values. If you live in a place that has seen fewer foreclosures, your home's value may still be relatively high.

If you're interested in clearing debt by tapping your home's equity, you'll need to contact a lender to find out if your home still has enough value to fund a home equity loan. Remember: the S&P/Case Shiller Index is based on the average property values in just 20 major metropolitan areas. It's only meant as a guide to assess how the real estate market is trending and has nothing to do with your ability to consolidate debt with an equity mortgage loan.

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