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Credit Card Utilization / Pay Down Question

tacpoly
Established Contributor

Re: Credit Card Utilization / Pay Down Question


@Revelate wrote:

@tacpoly wrote:
I wanted to bring this up, in case it might be relevant: I thought conventional wisdom says not to take out home equity loans (secured by the house) to pay off unsecured credit card debt. Because you’ve now put your house on the line if you’re unable to pay off the HELOC — if OP & wife runs up the credit cards again, for example.

At some level you need to make a commitment to pay off the debt, and if you do I think this conventional wisdom is basically wrong; sure know what your income is but not using a HELOC appears to be foolish to me anyway.

 

Short of getting hit by a bus (after which I don't really care) I know that I can pay off my debts, and as such a HELOC ain't no big thing especially when we're talking 6% or so, and really I wouldn't optimize at 100% I'd optimize at 80 (like I did) or 90% just to leave a cushion for exactly the reason you suggest: might want that spare equity someday if something really does go wrong, but really I'd do the HELOC and then just pay that down on the same timeline as the cards given that 6% is basically pay off right now in my world anyway... but 6% is way way cheaper than 16% or higher.

 

Admittedly all that said if I couldn't trust my wife (in my theoretical case) on that front, well, meh.  BK isn't the end of the world and if we're headed towards a divorce because of uncontrolled rampant spending then the house is probably up for sale anyway, but it just makes no sense to me to carry a bunch of debt at 20% instead of putting it on the HELOC, but admittedly I'm pretty risk tolerant and this one appears low to me.


OP has $132K (20%) equity in his house ($670K home value, $538K owed) with $107,800 in credit card debt between him and his wife, not to mention student (OP hints that this is significant) and car loans.  OP says they want to access 100% of their equity with a HELOC.  We had no clue what their salaries are or how they both ran up so much credit card debt that they seem to be having difficulty paying it off.  So, how do you/we know a HELOC is the smart way to go -- or not?  I'm just saying everyone seems to assume the HELOC is the best way to go without warning the OP of the risk of putting their home up as collateral and the cycle of running up credit card debt again.  

Message 11 of 15
FlaDude
Established Contributor

Re: Credit Card Utilization / Pay Down Question

I don't know what kihd of interest rate you are looking at for the HELOC, but there are other low (or zero)% options that don't put your house on the line and don't carry big closing costs.

 

I used a combination of 0% balance transfer offers (some have BT fees, should be able to find options at 3% or less) and low interest loans. You can check for pre-qualifications directly with lenders or got to Credit Karma, NerdWallet, etc. and they will check a bunch of lenders with a soft pull. Note that some loans will have an origination fee, obviously lower (or zero) is best. If the APR differs from the interest rate, the difference is probably that fee.

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Message 12 of 15
Revelate
Moderator Emeritus

Re: Credit Card Utilization / Pay Down Question


@tacpoly wrote:

@Revelate wrote:

@tacpoly wrote:
I wanted to bring this up, in case it might be relevant: I thought conventional wisdom says not to take out home equity loans (secured by the house) to pay off unsecured credit card debt. Because you’ve now put your house on the line if you’re unable to pay off the HELOC — if OP & wife runs up the credit cards again, for example.

At some level you need to make a commitment to pay off the debt, and if you do I think this conventional wisdom is basically wrong; sure know what your income is but not using a HELOC appears to be foolish to me anyway.

 

Short of getting hit by a bus (after which I don't really care) I know that I can pay off my debts, and as such a HELOC ain't no big thing especially when we're talking 6% or so, and really I wouldn't optimize at 100% I'd optimize at 80 (like I did) or 90% just to leave a cushion for exactly the reason you suggest: might want that spare equity someday if something really does go wrong, but really I'd do the HELOC and then just pay that down on the same timeline as the cards given that 6% is basically pay off right now in my world anyway... but 6% is way way cheaper than 16% or higher.

 

Admittedly all that said if I couldn't trust my wife (in my theoretical case) on that front, well, meh.  BK isn't the end of the world and if we're headed towards a divorce because of uncontrolled rampant spending then the house is probably up for sale anyway, but it just makes no sense to me to carry a bunch of debt at 20% instead of putting it on the HELOC, but admittedly I'm pretty risk tolerant and this one appears low to me.


OP has $132K (20%) equity in his house ($670K home value, $538K owed) with $107,800 in credit card debt between him and his wife, not to mention student (OP hints that this is significant) and car loans.  OP says they want to access 100% of their equity with a HELOC.  We had no clue what their salaries are or how they both ran up so much credit card debt that they seem to be having difficulty paying it off.  So, how do you/we know a HELOC is the smart way to go -- or not?  I'm just saying everyone seems to assume the HELOC is the best way to go without warning the OP of the risk of putting their home up as collateral and the cycle of running up credit card debt again.  


In the original post it was stated they were looking for the best way to pay down the debt with a chunk of cash, and implied at least both were onboard.

 

Ultimately if I reply to a post it's because I think there's useful information that I can provide that wasn't given previously (otherwise I would've just Kudo'd someone(s) and left it at that); it's information given, on an online forum, for all or for what little that's worth, people can take it or not... but making blithe assumptions and therefore not being transparent, which strikes me as how I was treated in my childhood which I hated then and I hate now, is not something I'm going to do to anyone.

 

End of the day I'm a proponent of giving information and then at that point it's up to the people receiving it to act on it or not, but I'm not going to presuppose failure.




        
Message 13 of 15
tacpoly
Established Contributor

Re: Credit Card Utilization / Pay Down Question


@Revelate wrote:

@tacpoly wrote:

@Revelate wrote:

@tacpoly wrote:
I wanted to bring this up, in case it might be relevant: I thought conventional wisdom says not to take out home equity loans (secured by the house) to pay off unsecured credit card debt. Because you’ve now put your house on the line if you’re unable to pay off the HELOC — if OP & wife runs up the credit cards again, for example.

At some level you need to make a commitment to pay off the debt, and if you do I think this conventional wisdom is basically wrong; sure know what your income is but not using a HELOC appears to be foolish to me anyway.

 

Short of getting hit by a bus (after which I don't really care) I know that I can pay off my debts, and as such a HELOC ain't no big thing especially when we're talking 6% or so, and really I wouldn't optimize at 100% I'd optimize at 80 (like I did) or 90% just to leave a cushion for exactly the reason you suggest: might want that spare equity someday if something really does go wrong, but really I'd do the HELOC and then just pay that down on the same timeline as the cards given that 6% is basically pay off right now in my world anyway... but 6% is way way cheaper than 16% or higher.

 

Admittedly all that said if I couldn't trust my wife (in my theoretical case) on that front, well, meh.  BK isn't the end of the world and if we're headed towards a divorce because of uncontrolled rampant spending then the house is probably up for sale anyway, but it just makes no sense to me to carry a bunch of debt at 20% instead of putting it on the HELOC, but admittedly I'm pretty risk tolerant and this one appears low to me.


OP has $132K (20%) equity in his house ($670K home value, $538K owed) with $107,800 in credit card debt between him and his wife, not to mention student (OP hints that this is significant) and car loans.  OP says they want to access 100% of their equity with a HELOC.  We had no clue what their salaries are or how they both ran up so much credit card debt that they seem to be having difficulty paying it off.  So, how do you/we know a HELOC is the smart way to go -- or not?  I'm just saying everyone seems to assume the HELOC is the best way to go without warning the OP of the risk of putting their home up as collateral and the cycle of running up credit card debt again.  


In the original post it was stated they were looking for the best way to pay down the debt with a chunk of cash, and implied at least both were onboard.

 

Ultimately if I reply to a post it's because I think there's useful information that I can provide that wasn't given previously (otherwise I would've just Kudo'd someone(s) and left it at that); it's information given, on an online forum, for all or for what little that's worth, people can take it or not... but making blithe assumptions and therefore not being transparent, which strikes me as how I was treated in my childhood which I hated then and I hate now, is not something I'm going to do to anyone.

 

End of the day I'm a proponent of giving information and then at that point it's up to the people receiving it to act on it or not, but I'm not going to presuppose failure.


And what new information did you provide?  My original post wasn't controversial. It is advice and caution that have been offered to many others on this forum.  I was simply surprised no one had given it, considering the substantial credit card debt, no information on how it was racked up, no information on ability to pay besides lump sum, etc... so I brought it up.  It is not presupposing failure to warn someone that many people repeat the cycle; it is simply information OP needs to consider.  

 

I frankly don't care that you can pay off your HELOC or how you assumed that they can pay it off.  I felt OP needed to know that it's generally not advisable to use a HELOC to pay off unsecured debt.  He and his wife can decide whether it's a risk they're willing to take.  

Message 14 of 15
Revelate
Moderator Emeritus

Re: Credit Card Utilization / Pay Down Question

Nobody brought up the HELOC positively before me, of course it is an addition by definition.

People can disagree, and my original post wasn’t controversial until you made it as such questioning why I would ever suggest such a thing.

I even re-read the thread, I’ll take some blame for being a little more over the top than necessary judging by your most recent reaction, but you share some of the fault on that front.



        
Message 15 of 15
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