In the following scenario, what's the best thing to do to reduce the debt the fastest and keep interest costs and balance transfer fees to a minimum?
Home Equity Loan balance of $26,000 (limit is $27,900) rate is variable (between 8.25 and 8.75%). The interest I pay on this loan is deductible on my taxes I think?
Discover balance of $8,400 (limit is $11,000) rate is currently 0% but will go to 8% in a few months.
Visa balance of $6,000 (limit is $25,000) rate is currently 20%.
Thanks for your advice. 10 points to the most helpful!
2006-10-30 08:39:31 · 5 answers · asked by Suzanne 4 in Business & Finance ➔ Personal Finance
The interest you pay from a Home Equity Line of Credit is deductible. Also, the rate on this kind of loan fluctuates, so be prepared to pay less or more depending on what the Fed does; i.e. lowers or raises the prime rate. As well, most HELC have an early pay-off penalty fee, but usually do not have a "balance transfer fee."
The introductory offer from the Discover card sounds nice, but if you have to transfer some kind of balance to it, you will have to pay a transaction fee, which could be anywhere from 3% to 5% of the amount transfered. Also, you want to make sure the rate stays at 8% and doesn't go up the following year. To reduce this debt, pay more than the minimum required payment. Can you not afford to pay $10 or $20 more per month? Make it $100 if you can.
The Visa rate sounds disgusting. I would never use that card. The best thing to reduce this debt is to transfer the balance to a better card if you can.
The best option seems to be the Home Equity Line of Credit. You can deduct the interest paid on it and there are no balance transfer fees. The best reason if that the rates don't usually go from 8% to 30% like how they do on credit cards. All in all, credit cards just suck.
2006-10-30 09:43:52 · answer #1 · answered by Giggidie 2 · 0⤊ 0⤋
Transfer the Visa to a new 0% for 12 months card. Do the same for the Discover when the 0% is over. Interest costs will well exceed any balance transfer fees. Just keep paying the Loan, since Interest is deductible. Don't consolidate everything into a new Home equity loan, if you can't keep up with the payments, you lose your home.
2006-10-30 15:29:53 · answer #2 · answered by Steve R 6 · 0⤊ 0⤋
If you can consolidate that god awful 20 percent balance, either by paying that off first or transfering a partial balance to the discover card. Home equity loan is a long term debt, but get rid of the high APR visa balance first!
2006-10-30 08:47:30 · answer #3 · answered by Nate 2 · 0⤊ 0⤋
Pay the mininum on the discover since it has the lowest interest.
Pay the visa off ASAP very high rate. I suggest calling VISA and claim a hardship (tell them whatever you want) ask to be put on a payment plan the finance charges are killing you and you won't beable to pay them a thing unless they help you. They may suspend your account for a few months and finance charges. If they do pay as much as you can!
As far as the home equity loan goes, pay the normal payments on that . A "home debt" is "a good debt".
Get rid of the VISA!! Whatever you do do not close either credit card, you need them to help your credit score.
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2016-10-21 00:29:01 · answer #5 · answered by grewe 4 · 0⤊ 0⤋