Whether or not to use a HELOC

[nextstepahead]

We're working with $100k in credit card debt consisting of 12 credit cards at interest rates ranging from 15.5% to 34%, all over 85% credit utilization, and a $240k HELOC (not tax deductible) at 8.75% variable interest at $0 balance. 

I called all of our creditors and most have programs, either directly or with a designated or any credit counseling agency, to reduce the interest rate if you close the account. However, I'd be concerned about destruction of my credit score from an increase in credit utilization and potential negative comments impacting our score for the long term. 

Using the HELOC to pay the credit cards would  immediately reduce the interest rate though I'm hesitant because we'd be moving the credit card debt from unsecured to secured. One possibility I imagine is that we'd get 0% credit card transfer offers after transferring most or all of the credit card debt to the HELOC, which would then enable us to transfer the debt out of the HELOC. I'm not sure if that's a realistic plan or not.   

We're making headway slowly but surely in paying off the credit card debt. Your ideas, suggestions and feedback to strategically speed up the process would be appreciated. 

[hdporter]

Here's the key problem with refinancing cc debt to a HELOC:  If you haven't resolved the consumption/spending issues that gave rise to this onerous debt beforehand (which seems unlikely), the HELOC refi opens a new window by which to continue amassing debt.

Bankruptcy offers a last resort measure by which to rid yourself of credit card debt.  Once you refinance to a HELOC, you greatly diminish that remedy.

What you really need to do is take full stock of your financial resources to determine how you can (if you can) reduce your outstanding balances by about 15% per year.  If you can discipline yourself sufficiently to attain that goal consistently for 18-24 months, then it might be feasible to offload some of your debt to a HELOC and continue debt reduction while carrying it at lower rates.

[FicoMike0]

Wow, that's a lot of debt! What kind of time horizon are you looking at to pay it off? 

I don't know about moving the debt to secured. If you have income and assets it might not make a lot of difference.

The idea of shifting it back to 0% cards is complicated to evaluate. What are your scores now, account ages, credit limits, etc. Getting 0% offers to cover that debt would be unlikely.

[GZG]

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@nextstepahead wrote:

We're working with $100k in credit card debt consisting of 12 credit cards at interest rates ranging from 15.5% to 34%, all over 85% credit utilization, and a $240k HELOC (not tax deductible) at 8.75% variable interest at $0 balance. 

I called all of our creditors and most have programs, either directly or with a designated or any credit counseling agency, to reduce the interest rate if you close the account. However, I'd be concerned about destruction of my credit score from an increase in credit utilization and potential negative comments impacting our score for the long term. 

Using the HELOC to pay the credit cards would  immediately reduce the interest rate though I'm hesitant because we'd be moving the credit card debt from unsecured to secured. One possibility I imagine is that we'd get 0% credit card transfer offers after transferring most or all of the credit card debt to the HELOC, which would then enable us to transfer the debt out of the HELOC. I'm not sure if that's a realistic plan or not.   

We're making headway slowly but surely in paying off the credit card debt. Your ideas, suggestions and feedback to strategically speed up the process would be appreciated. 

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the right answer is using the HELOC to pay off all of the credit cards and then not using a credit card ever again or you will get right back where you are now and you will lose everything.

but this amount of debt is definitely worth a visit to a BK attorney to discuss what/if any options you have

[Realist]

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@nextstepahead wrote:

We're working with $100k in credit card debt consisting of 12 credit cards at interest rates ranging from 15.5% to 34%, all over 85% credit utilization, and a $240k HELOC (not tax deductible) at 8.75% variable interest at $0 balance. 

I called all of our creditors and most have programs, either directly or with a designated or any credit counseling agency, to reduce the interest rate if you close the account. However, I'd be concerned about destruction of my credit score from an increase in credit utilization and potential negative comments impacting our score for the long term. 

Using the HELOC to pay the credit cards would  immediately reduce the interest rate though I'm hesitant because we'd be moving the credit card debt from unsecured to secured. One possibility I imagine is that we'd get 0% credit card transfer offers after transferring most or all of the credit card debt to the HELOC, which would then enable us to transfer the debt out of the HELOC. I'm not sure if that's a realistic plan or not.   

We're making headway slowly but surely in paying off the credit card debt. Your ideas, suggestions and feedback to strategically speed up the process would be appreciated. 

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So what are you looking to do?  You have options, and depending on your options, the results differ.

First, what is your credit score.  All this hinges on this.

Second, do you have an immediate purchases within the next few years, like a home loan.  Does your credit score matter?

Third, are you looking to pay this debt down legitimately, or do you want the fast track program?

Fourth, all financial facilities have credit counsiling facilities.  Every one of them will keep you in debt much longer than you can accomplish yourself.

Fifth, are you willing to take a credit hit for seven years?  Taking a credit hit isn't as bad as it sounds.  Settled in full, deleted in full, to counter a 100k debt, your score will most likely improve from where it is today.  Why?  The weight of the debt is gone.  The derogatory remarks are offset by this weight of debt.

Some people think they know.  Others have walked the walk.  I'll just say I've negotiated some debt with much less than you own.  From mid 600's to almost shy of sterling 850's, life does go on.  And the lessons you will learn, will never allow you to fall back into that abyss.

Take control of your stuff.  Never leave it in the hands of souless companies or corporations.  It's a write down or write off to them, a bad business decision.  But for you, its years or decades of your life if you mismanage a situation.  With a stroke of a pen, their debt to you, may disappear.   The optimal time to do so, is when you no longer have a job.  Hard to bleed a rock.

With this coming vast tsumani of layoffs, it appears to be a world of opportunity for debtors.  To do things you never once could do, when times were good.

[ptatohed]

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@nextstepahead wrote:

We're working with $100k in credit card debt consisting of 12 credit cards at interest rates ranging from 15.5% to 34%, all over 85% credit utilization, and a $240k HELOC (not tax deductible) at 8.75% variable interest at $0 balance. 

I called all of our creditors and most have programs, either directly or with a designated or any credit counseling agency, to reduce the interest rate if you close the account. However, I'd be concerned about destruction of my credit score from an increase in credit utilization and potential negative comments impacting our score for the long term. 

Using the HELOC to pay the credit cards would  immediately reduce the interest rate though I'm hesitant because we'd be moving the credit card debt from unsecured to secured. One possibility I imagine is that we'd get 0% credit card transfer offers after transferring most or all of the credit card debt to the HELOC, which would then enable us to transfer the debt out of the HELOC. I'm not sure if that's a realistic plan or not.   

We're making headway slowly but surely in paying off the credit card debt. Your ideas, suggestions and feedback to strategically speed up the process would be appreciated. 

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Yikes.  When you say you have a $240k HELOC, do you mean you have a current HELOC with a balance of $240k currently on it?  Or an available limit of $240k?  What is your 1st mortgage balance?  What is your HELOC balance?  What is your HELOC credit limit?  How much equity do you have?

I have no problem recommending you move all/most/some of your CC debt to your lower rate HELOC.  But, like others have said, if you so this, make sure you stop your reckless CC spending or else you can rack up yet another $100k in CC debt.  I am also in favor of you taking your credit card issuers up on their hardship programs.  Even if that means your cards are closed!  That could be a good thing!  If your issuers are offering rates at or less than the HELOC rate, I'd recommend it.  If the HELOC rate is lower than your CC rates, I'd recommend moving the debt to the HELOC.  But.... make sure you can afford the new 1st mortgage + HELOC monthly, and make sure you still have enough equity where you are not jeopardizing being upside down on your home.

Get those CC rates down as best you can, and then pay off that debt!  Use cash, check, ACH, or debit card from now on.  No more CCs!  GL

[SouthJamaica]

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@nextstepahead wrote:

We're working with $100k in credit card debt consisting of 12 credit cards at interest rates ranging from 15.5% to 34%, all over 85% credit utilization, and a $240k HELOC (not tax deductible) at 8.75% variable interest at $0 balance. 

I called all of our creditors and most have programs, either directly or with a designated or any credit counseling agency, to reduce the interest rate if you close the account. However, I'd be concerned about destruction of my credit score from an increase in credit utilization and potential negative comments impacting our score for the long term. 

Using the HELOC to pay the credit cards would  immediately reduce the interest rate though I'm hesitant because we'd be moving the credit card debt from unsecured to secured. One possibility I imagine is that we'd get 0% credit card transfer offers after transferring most or all of the credit card debt to the HELOC, which would then enable us to transfer the debt out of the HELOC. I'm not sure if that's a realistic plan or not.   

We're making headway slowly but surely in paying off the credit card debt. Your ideas, suggestions and feedback to strategically speed up the process would be appreciated. 

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Not everyone will agree with me but I'm in the school that says never borrow against your home.

[DebtNavigator]

If your main goal is protecting your credit score, using the HELOC might make sense if the interest rate is lower than your credit cards and you can pay it down quickly. It keeps your credit cards open, which helps maintain your available credit. That supports your score, assuming you do not build up more debt. You are turning unsecured debt into secured debt. If you ever need to sell your home, the HELOC will reduce your equity. And if you fall behind, your house is at risk.

A debt management plan, or DMP, is another option. It is designed to pay off your credit card debt in about five years, usually with lower interest rates. It does require closing your cards. That can increase your credit utilization in some scoring models, since the accounts still show a balance but no available credit. These accounts stay classified as revolving. Your score may dip at first, but on-time payments and shrinking balances usually help it improve. Some accounts may also carry a remark like “managed by credit counseling.” That does not affect your score directly, but it may raise questions with lenders.

Not all creditors will participate in the plan, and you have to qualify. If your goal is long-term financial stability instead of short-term credit optics, a DMP can be a strong option to clear the debt for good.

[FicoMike0]

I tend to agree with @SouthJamaica if it protects the house.

I have a friend who found it didnt. He didn't have much incone, a paid off house and car and quite a bit of unsecured debt he couldn't pay. The debt pirates who bought the debt sued him, got a judgement and then liened his house. They were about to take the house when he filed bk7. He managed to get an appraisal of the house that was just under the homestead exemption limit.

[coldfusion]

I'd suggest you take a very thorough look into the federal and ESPECIALLY your state's homestead exception laws including how having taken on debt via tapping into a HELOC impacts the laws ability to protect the asset against creditors.  That also includes understanding what if any differences in protection exist depending on how the ownership was structured (joint tenancy? etc) if only 1 vs both of you ended up filing for BK.