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Home line of credit

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Anonymous
Not applicable

Home line of credit

Hello All, I have a $25,000.00 worth of credit card debt which I pay $1300.00 towards a month, the highest apr is 24% . Should I take out a line of credit against my home to pay them off ?? thanks
Message 1 of 5
4 REPLIES 4
Anonymous
Not applicable

Re: Home line of credit

That answer depends on how well financed you are. Income no problem then yes. Do you want to risk a lien if you can't pay it back?

As far as credit reporting this will lower your score. New account and inq. $25k LOC often reads as revoving. Try for a $50k+ HELOC = Installment. WIN WIN!!! WIN!!

But if your score and financial situation is stable then it is a great idea to save interest. That's why you have credit to use it. Saving money is everything that you have worked for. In my personal situation I would try for an installment first but then again it's not a bad idea to have an HELOC for the future. Comes in handy.

Message Edited by ilovepizza on 07-18-2008 03:26 PM
Message 2 of 5
Lel
Moderator Emeritus

Re: Home line of credit

You could stand to save a lot of money in interest payments by going with a HELOC. But you have make sure that you are able to make the payments on it, but if you're already comfortably paying $1300 per month, then affording the payments for the HELOC should be a snap. The minimum payments for HELOCs are typically one of three options: (1) interest only; (2) 1% of the outstanding principal balance; or (3) 2% of the principal.

Tempting as it may be to go with the minimum payment, if your goal is to reduce your debt, then you should consider continuing to make large payments each month (i.e. pay the same $1300). You would pay off your debt several months faster than if you kept all the debt on your credit cards. The nice thing is that if you ever have a time when money is really tight, you can always revert to the minimum payment until your financial situation improves. If you have the foresight and discipline to pay down that balance when you can, then your minimum payments during those lean months will be even lower.

Another nice feature is that some of the interest that you pay on your HELOC may be tax deductible. Check with an accountant about whether this would apply in your case. If so, then it further reduces the effective interest rate.

But but but - as pizza says, you would be securing your debt with your home. If you were to default on the HELOC, the lender can foreclose. Tread carefully.
Message 3 of 5
haulingthescoreup
Moderator Emerita

Re: Home line of credit


@Anonymous wrote:
Hello All, I have a $25,000.00 worth of credit card debt which I pay $1300.00 towards a month, the highest apr is 24% . Should I take out a line of credit against my home to pay them off ?? thanks


You have to be really (really, really, really, really) honest with yourself and self-disciplined before going this route. How did you wind up with $25K in CC debt? If it were magically erased today, why wouldn't it be right back up there in a year's time?

I'm not trying to be ugly here. A HELOC (or a personal loan) can be a wonderful way to kill off your revolving debt and start you on a new path. But you must address the habits and issues that got you where you are now. Maybe you had a one-time disaster with an uninsured car getting totaled, or uninsured medical expenses. But if this is the cumulation of random consumer spending, you have to acknowledge this, and find a new way of handling your money and your credit.

One thing to think about with a HELOC is that this is your HOUSE, your HOME, that you're putting on the line. If you lose your job, if another disaster comes along, if your card balances go back up, are you willing to lose your home over this? Where will you live instead? What will happen to all the work and money that you put into your house? One alternative is a personal loan, as mentioned above. The interest would be higher, but at least it wouldn't be tied to your home.

Loans are GREAT for paying off revolving debt, as long as you're willing to slash your CC expenditures and only use your cards for daily expenses that you would otherwise pay with cash. Take all your cards out of your wallet, and only use one each month, and only for expenses that you're stuck with anyway, like groceries and gas. No shopping, no vacations, nothing. Pay the card off each week or twice a week, as if it were a debit card, and then swap it out the next month for a different card. This will put you in charge of your credit, instead of the other way around, plus it will help keep your cards alive.

It is absolutely possible to recover from heavy CC debt, but it requires absolute honesty with yourself and the willingness to toe the line, and to change your ways, to genuinely turn things around. Hope it works out for you!
* 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
Message 4 of 5
Anonymous
Not applicable

Re: Home line of credit

I'd have to agree with Hauling ... especially nowadays, with foreclosures and such so prevalent, I'd REALLY hesitate before I'd put my home on the line for a few CCs.

After all, look at the worst case scenario: If something happens and you can't pay off the CCs, your score will tank and you'll lose the CCs (possibly).

If something happens and you can't pay the HELOC, not only will your scores tank but you can lose your house as well, and be out in the street.

In fact, isn't that WHY foreclosures have become such a national issue? Too many borrowers relying on credit to cure their ills ... and then not being able to take care of it later???
Message 5 of 5
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