Now more than ever, most households are having a harder time making ends meet. With companies and businesses reeling from the effects of the current recession, some have been given less working hours while others have had to contend with pay cuts or reduction in benefits. Many suffered even worse fates – losing their jobs
For the more than 7 million individuals who have lost their jobs since the start of the crisis in December 2007, even providing for basic needs has become a problem. And in the next few months, more people could be joining their ranks and will be left jobless.
If you’re worried that unemployment may be in the cards for you in the near future, don’t just wait for the axe to fall. Take steps now to ensure that you will be left with some realistic options to tie you over until you can find a job.
Initially, the most practical measure that you can immediately apply even with just the threat of job loss is to examine your household budget to see where you can still cut costs. You can also look into your savings and see how much you have stashed away that can help you out during the proverbial rainy days.
Still, another alternative that you can consider is taking out a Home Equity Line of Credit (HELOC). While adding more debt to your portfolio isn’t exactly the smartest move in times like these, sometimes it could be the only choice available.
Avail of a HELOC before unemployment hits
If you come to the conclusion that a HELOC is your best option should unemployment hit, then you have to act fast. If there’s anything that you should know about credit, it’s that it is almost impossible to come by when you need it most. Like when you’re out of a job.
Banks would want to be sure that you are capable of repaying the loan and your jobless state would raise serious questions about your capacity to pay. Or, you could be granted one but with interest rates that are much higher than the usual rates because of the credit risk you pose. The best time to get a HELOC therefore would be before you would actually need it.
Why the HELOC is an ideal security against job loss
Homeowners commonly use HELOCs for major periodic expenses such as college tuitions, weddings, or a car purchase, but in light of the economic developments over the past year, the HELOC has also become a logical solution and source of funds during unemployment. Here are the three top reasons why this is so:
1. The HELOC gives the borrower a revolving line of credit, not outright cash.
Simply put, if you don’t need it, you won’t have to pay for anything except for the initial charges and annual fees. If you get a sum of money outright as in the case of home equity loans, you will have to spend this amount. If you end up not losing your job, this could be an added expense you have not anticipated in the first place.
2. HELOCs charge lower rates than credit cards and other personal loans, and require lower upfront fees.
While you may have difficulty finding a credit card these days that charges a single digit interest rate, HELOC rates are currently only within the 5 to 6 percent range. In addition, HELOCs also require lower upfront costs as compared to home refinancing and equity loans.
3. HELOCs offer flexible and longer repayment terms.
HELOCs are usually payable within 5 to 10 years — more than enough time for you to find a job and recoup your finances. Some banks also give the borrower the option of paying the interest-only on some months, a very welcome option while one is still unemployed.
Financial analysts predict that unemployment rate will continue to rise and breach the 10% mark within the year. Instead of sitting around, worrying about what could happen, know more about the HELOC and apply for one as soon as possible.