How my HELOC saved me after a layoff

Protecting yourself from possible financial struggles that haven’t happened yet is nothing short of brilliant. If you’re that kind of planner, fantastic. I can’t claim to be. But I’m trying, and I get better every year. One year, it happened by accident.

Here’s a little nugget that might help you see your own situation in a new light and (hopefully) help you identify smart money moves that might not have been on your radar.  

Why I borrowed against my home

Short answer: I borrowed against my home because I noticed that I could lower the cost of my existing debt. Getting a better deal is reason enough for me to make a financial move. 

Backing up a few years, something interesting had happened with my mortgage, and it proved to be the inspiration for future financial decisions. 

My home was located in a zip code targeted by a government program to make mortgages more affordable and help borrowers avoid losing their homes. (This was in early 2009.) My lender called me up out of the blue one day and offered to lower my mortgage interest rate by 2.4%. Closing costs were negligible. Not one day was added to the life of my loan (they wrote it for 26 years, which was the amount of time remaining on my original mortgage), and my payment dropped by $250 per month. 

Everything in my budget became a little more affordable.

Several years later, my bills felt heavy. I was a single homeowner, footing all expenses on my own. My debts were a mortgage, two student loans, and two credit card accounts. I wasn’t worried, per se. My debt felt under control. But I was keenly aware of how much the debt would ultimately cost me. 

I decided to apply for a home equity loan to consolidate my debts.

Here’s what happened after I applied for a home equity loan

I applied for the home equity loan and was easily approved. I used the money to consolidate my debts. This time the new payment was several hundred dollars less than what I had been paying. 

What to do with the extra cash flow? My instinct was to keep paying the higher amount and get rid of the debt faster. But I didn’t have much time to think about my plans. A month after I got my loan, I was laid off from my job. For the first time ever.

The possibility of losing my job was never on my radar. I was shell-shocked, devastated, and terrified. 

How a home equity loan saved me financially

Lady Luck must have been chilling in my living room the day I had the bright idea to lower my costs by consolidating my debts with a home equity loan. If I had waited just one month, I wouldn’t have been able to show enough income to qualify for the loan.

My saving grace during that tough time was the breathing room in my budget. 

I filed for unemployment, which wasn’t anywhere near what I had been earning (and there’s a waiting period in California when you don’t get any money at all). Between my meager savings and the fact that my financial obligations were lower, I survived—with no new debt—until I landed a new job.

What I learned about financial decisions

The lesson that really hit home for me was that adulting means always looking out for my own financial well-being. 

I didn’t need money to fix up the house. I didn’t need money for a big expense. But I did notice that I could reorganize my finances in a way that gave me an advantage—and protected me in the face of job loss.

I’ll always be surprised that a bank called me on the phone and offered to give me a better loan. That just doesn’t happen. 

And I’ll always be proud of myself for making a great financial decision that had immediate and long-term benefits. 

Disclosure: Individual results vary. HELOC product obtained was provided by a third party.