Question: Should i open up a home equity loan or transfer to new credit card?

(Posted by: Patrick on 2010-01-27 07:43:58)

I have $5k on my current credit card that has high interest, I'm asking should I look at opening a home equity loan or transferring to another credit card with lower interest rates

Posted by: mike1942f on 2010-01-27, 07:52:00

If you can get a lower rate, go with another card - the companies are being really vicious right now, trying to beat the new consumer laws that will rein them in somewhat. A home equity loan is a second mortgage and they can take away your home. If you haven't paid down the credit card, you stand a chance of building up that card or another and also losing your house.

Posted by: romeochewy on 2010-01-27, 07:57:14

A home equity loan should always be an absolute last resort. A lower interest rate on a home equity loan, or even refinancing might sound nice now, but what happens if something happens with your job in the future? If you can, transfer it--if not, leave it where it is. If you default on a credit card, you get a bunch of calls and such. Maybe even a lawsuit. The worst is a possibility of wage garnishment. Compare that with defaulting on a home equity loan, where you could completely lose your home you live in. Which is worse? In my opinion, do NOT do the home equity loan!!

Posted by: Turk II on 2010-01-27, 08:13:24

I would disagree with the others and recommend you use the equity in your home to help consolidate your bills. I would, however, recommend a Home Equity Line of Credit (or HELOC) rather than an equity loan. An equity loan is a fixed amount paid back over a fixed period of time at a fixed rate. A HELOC is an available line of credit that you can draw from and pay back as you desire. Each month you'll be required to pay the minimum interest charge, and anything extra you pay will go towards the principle. One thing you need to watch closely with a HELOC is that is is usually an adjustable rate which is tied to the prime interest rate. Right now, this is 3.25% so a typical interest rate you would pay would be 5.25%. Your minimum monthly payment right now on a $5000 balance would be about $22. Anything extra would come right off the principle and reduce future minimum payments. A big advantage of a HELOC is that the interest you pay is 100% deductible from your taxes - just as your mortgage interest is. This will also provide you will a line of credit should an emergency in the future exist. The others have commented about the risks of loosing your home if your debt is in a HELOC and attached to your home. This is true - but there is a simple solution: pay your bill each month!

Posted by: Rate Hound on 2010-01-27, 08:38:03

All good answers depending on your situation. If you think you are in financial trouble or are at risk of being so in the future, then don't put your home at risk. If you are in good financial shape, the HELOC is a nice way to go since the interest rate is low AND you get to write it off.

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