Home Equity versus Credit Card Bills??

Question

I am looking into consolidating my bills.

I have 4 credit card bills with average 9% interest. There is about 10,000 dollars of debt.

Do you think it is a good idea to consolidate it into a home equity, where my house is collateral or leave it as CC debt where no house collateral for an average of 3% lower interest?

Both me and husband have steady jobs, don't plan on loosing them. But is we were to get hurt or something we would loose them and that would probably hurt our ability to pay.

I like the idea of only paying one bill, but not sure if it is the right thing to do....

Answer 1

I'd vote for rolling them into a home equity line, cutting them up, but leaving the accoutns open- IF you can avoid temptation. MOst people never pay CC's off, and if htey do, it takes 10,20, 30 years or more, because they charge here and there. An installment loan means it has a date it will be paid by, AND you're only paying 6% interest, which over the life of the loan, can really add up to a savings.

Leaving the accounts open and with no balance will help your credit score.

Answer 2

Consolidating debt can be a tricky decision. Here are a few questions you should ask yourself to make sure it is the right decision for you.

1. Do you have enough equity in your home?
- The more money you owe on your home the higher the interest rate can be. The best rates are when your Combined Loan to Value (CLTV) is below 65% but there are options to go to 95-100% CLTV and even 120% CLTV
(ex. Your home is valued at $100,000.
Your owe $ 80,000.
You get a 2nd for $ 10,000.
Your total mortgages are $ 90,000
Your CLTV = 90,000/100,000 = 90% CLTV)

2. Are you considering a Home Equity Line of Credit (HELOC) or a Home Equity Loan (HE)?
- A (HELOC) is like a credit line attached to your home. You can borrow money from it, pay it off and borrow from it again. HELOCs also have variable interest like your credit cards and will change over time. The payments are usually interest only. Many lenders will give you a HELOC for little or no cost to you. Most have an annual fee.
- A (HE) is a fixed rate loan that has a fixed payment and will pay off in a specified amount of time. You can not borrower the money again like the HELOC once you pay into it. There are usually fees involved in this type of loan.

If your goal is to pay off the debt quickly the Home Equity Loan will keep you on track to do that.

If you like the ability to borrow the money again in the future, the HELOC may be the right choice.

3. Tax Benefits **Consult your tax advisor** You may be able to deduct the interest you pay on either of the home equity options above from your taxes.

It can take up to 45 years to pay off a credit card making the minimum payments. Weigh the costs involved in obtaining the new loan vs. the monthly savings and tax benefits.

If you choose to pay off the Credit Cards with the Home Equity loan, Do Not - I repeat - DO NOT close the credit cards. Closing the CCs can hurt your credit score. Leave the CCs open.

~Danke Schoen

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Answer 3

Using a home equity line of credit is not good for CC debt. Most people just run up their credit cards again after they pay them off. There are 2 ways to do this. One is to get a 0% credit card usually for 12 months. Transfer all the balances to the new card, then pay $833.33 per month to pay it off. If you cannot do that, the fastest way to pay off the debt with the least amount of interest is to pay minimum on 3 of the cards with the lower interest rate and put as much as you can on the card with the highest interest rate. Once that card is paid off, then do the same with the next highest interest rate.

Answer 4

Personally, I don't think I would want to risk my home for unsecured debt. As of now, if you can't pay, they can't really do anything but ding your credit score and possibly later garnish wages. If you can't pay the home equity line, they'll take your house leaving you and your family on the street. That is in addition to ruining you credit enough to make it impossible to buy another house.

In addition, it is statistically proven that most people within a year of getting a home equity line have maxed it out and then run back up the same credit cards they paid off. So if you do make the BAD (in my opinion) decision of the HELOC, at least cancel all of your credit cards that you pay off with it.

Answer 5

NO a credit card is unsecured. You do not PLAN on lossing your job but you do not know. If you can't pay the bill you could lose your home. If you can't pay that credit card you don't lose anything but your credit. Did you know that credit card companies "write off" a debt after no payment for a year, which means you do not "owe" anything after a year of no payment. But you can't tell them you are sending a check or your going to try and pay them during that year. you have to tell them you "cant pay them at this time.

Answer 6

I think you are looking at the wrong end of the problem. With two good jobs, why do you have ANY debt? Only answer is that you are impulse purchasers, and buy things you don't need or even want. Cut up three of the four credit cards, pay cash for most of your purchases (makes you stop and think about the purchase), pay off the smallest debt first. In my experience, making more money doesn't cure debt problems, nor does reconfiguring the payment schedules, you must examine your spending habits.

Answer 7

Home equity is the way to go. It will save you money in the long run. Plus you usually only have to pay the monthly interest if you get in a tight spot. You may also want to think about suppplimental insurance in case you lose your job.

Answer 8

Refinance your home to pay off your credit card bills. Mortgages generally have lower interest rates than credit card companies.

Answer 9

use a home equity line of credit. you will get like a check book to settle all of your credit card debt then you may have some extra only for emergencys or nessary home improvement

Answer 10

If your home equity loan APR will be lower that the ones on your credit cards, go for it. Save yourself some money.