cbsnews.com
Using HELOCs to Combat Inflation: Strategies and Risks
Amid slightly rising inflation in early 2025, financial experts advise using HELOCs to consolidate high-interest credit card debt (average 21% vs. 8% HELOC), fund home renovations before prices increase, and avoid tapping retirement accounts.
- What are the most effective ways to utilize a HELOC to mitigate the impact of inflation on personal finances?
- Americans experienced lower inflation in the past year compared to previous years, but January 2025 saw a slight increase following similar small rises in prior months. Home equity lines of credit (HELOCs) offer a potential solution for managing inflation, particularly for consolidating high-interest debt or funding home renovations.
- How do the advantages of HELOCs compare to other debt consolidation or borrowing methods in inflationary times?
- Financial experts suggest three key HELOC applications to combat inflation: consolidating high-interest credit card debt (average credit card rate exceeds 21%, while HELOC rates average around 8%), financing home renovations to preempt rising material and labor costs, and avoiding retirement account withdrawals. These strategies help manage debt, leverage home equity, and preserve long-term savings.
- What are the potential long-term financial risks and benefits of using a HELOC to combat inflation, considering both its flexibility and the associated risks?
- Using HELOCs strategically can positively impact credit scores by reducing high-interest debt, enabling timely home improvement projects before inflation increases costs further, and safeguarding retirement funds. However, risks exist; variable interest rates may rise, and the home serves as collateral, requiring careful financial planning and responsible debt management.
Cognitive Concepts
Framing Bias
The article frames HELOCs as a solution to inflation, repeatedly highlighting their benefits and downplaying potential risks. The positive framing is reinforced by quotes from financial experts and the inclusion of a call to action to obtain a HELOC. The headline and introduction strongly suggest HELOCs as an answer to inflation.
Language Bias
The article uses language that is generally positive and persuasive towards HELOCs, often referring to them as a "shield" or a "smart choice." While this language is used to inform, it also promotes a positive perception that might not be entirely realistic, given the potential risks involved. More neutral language could include terms like "option" or "financial tool" instead of more emotionally charged terms.
Bias by Omission
The article focuses heavily on using HELOCs to combat inflation, but omits discussion of alternative financial strategies, such as budgeting, reducing expenses, or seeking government assistance programs. This omission might mislead readers into believing a HELOC is the only or best solution for managing rising costs, neglecting other potentially more suitable options depending on individual circumstances.
False Dichotomy
The article presents a false dichotomy by implying that using a HELOC is the primary solution for managing inflation, without acknowledging the complexities of personal finance and the variety of other strategies that could be equally or more effective.
Sustainable Development Goals
Using HELOCs to consolidate high-interest debt can help reduce the financial burden on lower-income households, thereby reducing inequality. Lower interest rates and flexible payment options can make debt management more manageable for vulnerable populations. Additionally, preventing the need to withdraw from retirement savings protects future financial security, particularly for those with limited resources.