Using Discover BT to pay down a HELOC

[Citylights18]

I called the CSR over at Discover about what the limitations are for Balance Transfers. The CSR said anything with a 16 digit account would work an additionally you could do it with a home loan. The got me thinking about using it to help pay down a HELOC. There is a BT associated with Discover (3% or 5%) but the real savings is in the lower variable payment during the 15 months.

The case I'm going to use in this example is a HELOC with a 46,300 balance and a Discover BT of 10,000 with 3% attached to it. Opening a new card with a 15 month promo. The assumption will also be that $300 dollar payments will be going against the Discover Card or $300 extra a month will be going against the HELOC. Below shows how the numbers would roughly work out after 15 months. The rate assumption on the HELOC is 5% with an initial payment of $395.

$300 extra payment to a 46.3k HELOC (15 mo.)

Average interest paid per month w/o extra payments: $187.51

Average interest paid per month with extra payments: $178.64

Interst savings over 15 months: $133.05

Average monthly payment @ 0.0085 of total principal w/o extra pmt: $379.49

Average monthly payment @ 0.0085 of total principal with extra pmt: $358.52

Total net savings by applying $300 extra a month for 15 months: $447.6

Final balance on the HELOC after 15 months: $38,556.70

$10k balance transfer to a 46.3k HELOC (15 mo.)

Average interest paid per month w/o balance transfer: $187.51

Average interest paid per month with balance transfer: $144.15

Interst savings over 14 months: $650.4 (first month is $196.62 with initial BT)

Balance Transfer fee for $10,000: -$300

Skipped 1st month payment: $395

Average monthly payment @ 0.0085 of total principal w/o BT: $379.49

Average monthly payment @ 0.0085 of total principal with BT: $290.91

Total net savings by BT $10,000 over for 14 months: $1,985.52

Final balance on the HELOC after 15 months: $32,589.33

Final balance on Discover after 15 months: $6,100

Remaining debt after 15 months: $38,689.33

While the numbers are not quite exact (+/- 10%) you can use Discover to help drive down a variable debt. When the promotion ends I've seen it also where Discover might allow you to extend for a few additional months. If not pay it off the balance with a bank account with a line of credit. $6,000 at 2% minimum monthly is only $120 a month and you could thow it in with other debt if you wanted to.

The savings are mostly tied into paying Disco the extra $300 while reducing the monthly HELOC payment to $290 for a total of $590 rather paying $300+$395 ($695) to the HELOC.

[hdporter]

If I understand, after 15 mo the net savings under this strategy is approx $133.  Right?

Sounds like a reasonable strategy provided your Discover credit line is in excess of $35k (keeping utilization to 29%).

[Citylights18]

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@hdporter wrote:

If I understand, after 15 mo the net savings under this strategy is approx $133.  Right?

Sounds like a reasonable strategy provided your Discover credit line is in excess of $35k (keeping utilization to 29%).

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Using Disco saves you $1,000 a month because you reduce your minimum required payment to the HELOC.

Yes I wouldn't recommend something like this if you have an upcoming mortgage to qualify for but if you don't and you are in the paydown phase it could help you out.

[hdporter]

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@Citylights18 wrote:

Using Disco saves you $1,000 a month because you reduce your minimum required payment to the HELOC.

I'm apparently obtuse because I don't see where that number is derived.  However, I presume that rather than "saves you", you really mean "reduces your cash outflow by". 

I read "saves" as reducing actual permanent expense.  I tend not to be worried about cash outflow where, in a case such as this, it can be offset by a new HELOC draw, if the scheduled paydown is undesirable.

For example, I have a $200k+ balance on a HELOC tied to a home which we intend to sell soon that was drawn as down payment on the purchased of our replacement home (we're making mortgage payments on the new mortgage).  Because the HELOC will be paid out of closing on our existing home, I don't wish to repay the HELOC further.  So, I make the 1% monthly HELOC payment of $2000+, but turn around and draw back the related principal portion of that monthly payment, so I'm out of pocket just the 0.25% monthly interest.

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[Citylights18]

What I'm trying to prove is that it would be financially advantageous to take a BT offer when trying to pay down a HELOC.

The savings are mostly tied into paying Disco the extra $300 while reducing the monthly HELOC payment to $290 for a total of $590 rather paying $300+$395 ($695) to the HELOC.

Option 1: Make $300 dollar extra payment to a $395 HELOC (Total monthly payment of $695).

Option 2: Use a 10k balance transfer against the HELOC with a $300 dollar payment and reduce your HELOC to $290 a month (Total payment of $590).

You lower the HELOC payment with the BT saving you money, even if that BT fee is 3% or 5% its still a good deal.