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Established Contributor
PurpleHaze
Posts: 717
Registered: ‎03-05-2008

Opinions Requested - HELOC variable rate to Pay off CC Debt with increased APRs

I was approved today for a HELOC variable rate at prime plus I think 1.75% (said the rate is 5%) or a fixed rate loan same amount at 7%. I like many got rate jacked to 15% or higher on several of my credit cards. I realize the prime rate can go up at any time and I know most of you are not financial advisors. However, I would like opinions if getting a HELOC is a good option to get my cards paid off (or the loan). Thanks in advance.

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Super Contributor
marty56
Posts: 5,679
Registered: ‎10-06-2007

Re: Opinions Requested - HELOC variable rate to Pay off CC Debt with increased APRs

I would not do it unless you have the discipline not to run the balances up again.  You must PIF each month.

 

Most people who do this wind right up back in CC debt unless they modify their behaviour. 

09/12/2013 FICO: EQ: 772 EX:813 TU:752
Senior Contributor
txjohn
Posts: 4,214
Registered: ‎09-12-2008

Re: Opinions Requested - HELOC variable rate to Pay off CC Debt with increased APRs

I would assume the OP won't run up the balances again, since they would be subject to the higher rates, and OP objective is to not pay balances at those rates.

 

As a financial plan, it is always good to lower debt and to pay the lowest rates on the debt one has.

 

I agree with Marty that one must avoid the pitfall of running up new CC debt in addition to the HELOC consolidation....thus only exacerbating the problem.

 

My advice is to pay off as fast as possible regardless of where the balances are parked.  But if you can park it at 10 to 12% lower rate, that's money that could go toward principle.

 

 

 

 

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09/03/2009 TU: 777, EQ: 776 ($8 balance on an account dropped me out of 780's)
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Senior Contributor
creditwherecreditisdue
Posts: 4,923
Registered: ‎04-19-2009

Re: Opinions Requested - HELOC variable rate to Pay off CC Debt with increased APRs

[ Edited ]

How long is it going to take to pay off the HELOC?

 

When does the HELOC adjust?

Message Edited by creditwherecreditisdue on 08-19-2009 09:59 PM
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haulingthescoreup
Posts: 28,115
Registered: ‎04-01-2007

Re: Opinions Requested - HELOC variable rate to Pay off CC Debt with increased APRs

I agree with txjohn.

PurpleHaze, you've been on the forums for a long time, and you know how this sort of thing works. If you know, really know at a gut level, that you won't increase your debt, and that you will do the fastest, most massive paydown possible, then I think that this can be a good solution. I assume that the rate only changes when the prime changes, right? And the Fed has been holding down the bank rate for a long time. Even if it starts going up, I'm guessing that it will be awhile before it gets to scary levels.

I would never give this advice to a new member who just hit the forums, in a panic over how to manage debt, btw.
* Credit is a wonderful servant, but a terrible master. * Who's the boss --you or your credit?
FICO's: EQ 781 - TU 793 - EX 779 (from PSECU) - Done credit hunting; having fun with credit gardening. - EQ 590 on 5/14/2007
Senior Contributor
creditwherecreditisdue
Posts: 4,923
Registered: ‎04-19-2009

Re: Opinions Requested - HELOC variable rate to Pay off CC Debt with increased APRs

Some adjust monthly. Some adjust quarterly. And on various quarters.

 

The frequency of the adjustments and the practical speed at which this debt can be paid down are going to determine whether the variable HELOC or the fixed rate is a better choice.

Established Contributor
PurpleHaze
Posts: 717
Registered: ‎03-05-2008

Re: Opinions Requested - HELOC variable rate to Pay off CC Debt with increased APRs

Thanks for your feedback.

 

HTSU: you are absolutely correct. I took out a loan last year (dumb dumb move) from HFC to pay off CCs which I did. Then I ran that line of credit back up at 25%. I have realized the error of my ways and realize I must not run up the HELOC for friviolous reasons. I have read your posts when you speak of your HELOC and it seemed like a viable option, however I have heard many negative things about them as well. The office one of the biggest differences is the HELOC has the lower rate and its an open line of credit.

 

Txjohn: you are also correct ... my goal is to pay off my CC debt at a lower rate. I am thinking I should maybe do 2 at a time then pay off. Another two ... then so on.  Is that what you were referring to when you wrote park at 10 - 12% lower rate?  If not, please explain ... I appreciate it.

 

CWCIS: I think the answer to your question about when it adjusts is the rate only changes if/when the prime rate goes up (or down). Sorry, not well versed on lingo.  Hence why I probably shouldnt apply for certain types of credit.

 

Thank you all for your feedback. If there is more out there please add on.

 

 


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Current Score: EQ:633 TU: 651
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Senior Contributor
creditwherecreditisdue
Posts: 4,923
Registered: ‎04-19-2009

Re: Opinions Requested - HELOC variable rate to Pay off CC Debt with increased APRs

Is the fixed rate loan a HELOC? Also, try to take a look at the offering document for the HELOC and see if you can find the section that tells you how/when the rate adjusts.
Established Contributor
PurpleHaze
Posts: 717
Registered: ‎03-05-2008

Re: Opinions Requested - HELOC variable rate to Pay off CC Debt with increased APRs


creditwherecreditisdue wrote:
Is the fixed rate loan a HELOC? Also, try to take a look at the offering document for the HELOC and see if you can find the section that tells you how/when the rate adjusts.

 

The fixed rate is just a straight loan ... here's the money here is how much you pay per month. I have the offering document. I will look for that rate adjustment information.

Starting Score: EQ: 633 (12/31/09) TU: 651 (12/31/09)
Current Score: EQ:633 TU: 651
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Senior Contributor
txjohn
Posts: 4,214
Registered: ‎09-12-2008

Re: Opinions Requested - HELOC variable rate to Pay off CC Debt with increased APRs


PurpleHaze wrote:

Thanks for your feedback.

 

HTSU: you are absolutely correct. I took out a loan last year (dumb dumb move) from HFC to pay off CCs which I did. Then I ran that line of credit back up at 25%. I have realized the error of my ways and realize I must not run up the HELOC for friviolous reasons. I have read your posts when you speak of your HELOC and it seemed like a viable option, however I have heard many negative things about them as well. The office one of the biggest differences is the HELOC has the lower rate and its an open line of credit.

 

Txjohn: you are also correct ... my goal is to pay off my CC debt at a lower rate. I am thinking I should maybe do 2 at a time then pay off. Another two ... then so on.  Is that what you were referring to when you wrote park at 10 - 12% lower rate?  If not, please explain ... I appreciate it.

 

CWCIS: I think the answer to your question about when it adjusts is the rate only changes if/when the prime rate goes up (or down). Sorry, not well versed on lingo.  Hence why I probably shouldnt apply for certain types of credit.

 

Thank you all for your feedback. If there is more out there please add on.

 

 


Parked referred to BT from CC to the HELOC.  If you are approved for or will have access to the HELOC, then you might as well park all of the CC debt immediately on the HELOC and SD the cards (other than small uses to keep active or for normal cash/PIF expenses for rewards).

 

There is no sense in paying more interest than necessary.  However, you must not pay only minimums.  You need to throw the "savings" in interest toward principle, plus as much as you can muster.

 

NOTE:  Make sure you have emergency fund/savings.  If you do not have 3 to 6 months expenses in emergency savings, then you probably should split between paydown of debt and savings.  Park (BT) the CC debt on the HELOC.  Then SD the CC's (except minimal/PIF expenses).  Add to savings and pay on the HELOC.  It's great to be debt free, but not while keeping yourself cashless.  CC's are a poor savings plan.....so be sure you have a budget which includes your emergency fund.

 

Also, emergency fund does not have to be at current expense levels.  Should something happen and you need to tap it, there are obviously ways to reduce your monthly costs.  Have this as part of your budget under EMERGENCY BUDGET, which pre-plans what will be cut (non-essentials) in case of cash flow interruption/job loss, etc.  Because when you are facing those situations, you will feel much better all ready having the plan, the emergency funds and just execute, rather than trying to figure out what to do at that time.  You want the burn rate of emergency to be minimized.

 

In closing:  the HELOC is good at reducing interest on debt as long as you remember to build cash and pay down debt, not incur any new debt during the paydown and cash buildup.  Once you have met those two goals, I would take all that you were paying toward HELOC and debt and continue to put it into emergency.  Personally I believe in achieving (eventually) a full year of living expenses for emergency.

 

Once you have 6 to 12 months emergency, then begin planning and budgeting your major purchases of the next 3-5 years, including appliances, autos, vacations, etc.  Be putting cash toward those in savings that is ear-marked for the intended purpose.  Don't put these on CC and then pay off over time.  Plan for them, save and then spend cash.  You will save a ton in interest, keep debt low and live a lower stress life.

 

We all must make monthly payments.  Why not make them into savings before the purchase rather than after with interest.  Prior planning and a little patience pay big dividends.

 

Also, have you had a garage sale/ebay/craigslist sale in the last 1-2 years?  If not you should consider it.  Most likely you have things laying around, stored/stuffed in corners, closets, garage, attic, storage, etc. that you don't use, don't need, don't want or have forgotten you have.  Sell it and put it in savings toward the emergency fund.  If you all ready have it, throw it at the CC/HELOC debt.  You might as well take that value off the shelf and put it to good use.

 

GOOD LUCK!  keep us posted on your final strategy and execution.  :smileyhappy:

 

 

Credit Scoring 101 - Tuscani   *  Guide to Common Abbreviations
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09/03/2009 TU: 777, EQ: 776 ($8 balance on an account dropped me out of 780's)
03/28/2009 TU: 814, EQ: 810, EX: 781 (02/12/2009)
05/18/2005 TU: 563, EQ: 580, EX: 549

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