Correct Response: C. A home equity line of credit (HELOC) allows a homeowner to borrow money on the equity that they have generated in their home. Because it is a line a credit, the homeowner can periodically borrow money up to a certain limit. Because the homeowner is using the equity in their house as collateral for the loan, interest rates are lower that with other forms of debt, especially credit card debt. Therefore using a HELOC is a reasonable strategy for paying down credit card debt. All loan types, including HELOC charge a penalty for late payments based on the terms of the agreement (A). HELOCs are available in variable, fixed, and hybrid fixed-rate options. A borrower could choose a variable interest rate that changes based on the market conditions (B). While additional payments can be made on a home equity loan, additional payments can be also be made on credit card debt (D). The advantage of a HELOC is the lower interest rate.
