I owe 25Kmostly in credit cards. Should I take out a 9.5% home equity loan or get 0% interest cred cards til paid off?

I owe 25Kmostly in credit cards. Should I take out a 9.5% home equity loan or get 0% interest cred cards til paid off? I have a chance for $25k in home equith for 9.5 for 15 yrs or do I apply for a zero % credit card and keep doing that till it is paid off?

Asked by oteywan 62 months ago Similar Questions: owe 25Kmostly credit cards 5% home equity loan 0% interest cred til paid Recent Questions About: owe 25Kmostly credit cards 5% home equity loan 0% interest cred til paid Business > Financial Services.

Similar Questions: owe 25Kmostly credit cards 5% home equity loan 0% interest cred til paid Recent Questions About: owe 25Kmostly credit cards 5% home equity loan 0% interest cred til paid.

Getting the equity loan or the 0% card isn't a good enough plan Either's a possible. Start, though, by listing all your debts from smallest to largest on a sheet of paper. Now, start paying them off, starting with the smallest, and paying minimums on all the others until the first is paid off.

Then go to the second, and then the third and so onSell everything, get focused and go crazy during the payoff cycle. If you want to transfer, fine, but better to just pay like crazy on purpose. Sources: My answer .

Consider a different approach to credit card debt reduction I wouldn't recommend taking out a home equity loan to cover unsecured debt. We've done this in the past and found overselves in deeper trouble and jepordizing our home on top of it all! Zero percent interest credit cards are also not a good solution.

If you're late on one payment the credit card company can spike your interest rate. The best thing to do is to get intense about paying your debt down. Sell stuff you don't need... Get another job... Eat out less... Dave Ramsey's approach is excellent - I'd recommend that you check our his "Total Money Makeover" book and take a look at his website at daveramsey.com.

Sources: Personal Experience .

Keep your equity where it belongs I recommend keeping the equity in your house where it is. A HELOC (Home Equity Line of Credit) is better used for home improvement or absolute emergencies. If you pay off the cards this way you’re reducing the equity in your house, and it leaves the cards around where they can be run up again.

You can just make matters worse in the long run. That’s the psychological angle. The financial angle is also compelling.

9.5% vs. 0% is a no-brainer, assuming the 0% is realistic. Can you actually get one? Bear in mind that many of these offers actually end up being for only a few thousand bucks once you apply.

On the other hand, for the HELOC you’ll pay the 9.5% interest, but on top of that you’ll almost certainly pay closing and other costs, which makes that route even more expensive. Some HELOCs even have early payment penalties, something to watch out for. Some are also not fixed interest rates, and if you pick up an ARM you face interest rate risk just like with your current credit cards.

Finally, 9.5% isn’t actually a good rate right now. If you can get that, you can certainly shop around for better rates, too. Even if your credit isn’t perfect, HELOCs are one area you expect to get better rates because they’re backed by equity in your house (secured).

There’s no reason to pay 2-3% more than everybody else just because you’re getting relief from your credit card percentages. Stop by BankRate and you can compare rates. According to the site, rates around here are going for as low as 7.24% for a $30k HELOC for somebody with a "Fair" credit rating.

There are only two advantages I can see to the HELOC in your case: It consolidates the debt into a single loan, making it easier to track. Just don’t use those credit cards again, or you dig yourself in deeper! Remember, you’re still in debt!

The interest paid may be tax deductible. Note that the tax deduction is only your tax rate times the interest, so if you pay $1000 in interest during the year, this only saves you $200 per year for a 20% tax bracket. A better rate or even a low-introductory-rate credit card (say, a 4.5%/6 months, if you can’t get a 0% offer) will easily wipe that out.

If you do go with the HELOC, one last thing to consider. You may be able to get a better rate if you borrow MORE, believe it or not. If so, look for other debts to consolidate.

A HELOC can be more attractive if you can pay off your cars, student loans, and other debts, if their rates are higher than the HELOC.

You can do the math and get an answer that is close enough for a good decision This happened to me. Sometimes around 2002, I owed more than $20,000 and less than $25,000 and was afraid to add it up. I got some cards that were no interest for the first year and am paid off now.

(The computer just ate my first answer - so here is a short version) If you pay interest it will take (rough calculation) a payment of $335 a month for 15 years. If you do not pay interest you can pay it off in 15 years at $138 and change a month or in 6.2 years at $335 per month. If you go interest free keep the fees and charges in mind.

Some have one year without fees or charges and I used them. Others have transfer fees, and also pick up profit from late fees and over limit fees. One company loaned me my limit and then said I was over limit when my first fee went over the limit before I had a chance for my first payment to go through.

I used Checkfree to have a company with records and people to prove that I had made my payments. I also paid the minimum payment (or more) twice each pay period to make sure that I never missed or was late. They make money off people who miss a payment.

If you are careful and get loans without transfer fees or such, the decision is: Interest: You pay $335 per month for 15 years or No interest: you pay $335 for 6 years. Or you pay $138 per month for 15 years. Your choice.

The home equity loan is the better option For one thing, every time you apply for a new credit card, that inquiry goes on your credit report, and if you inquire about too much new credit too close together, that has a dramatic impact on your credit score. For another, the average length of credit has an impact on your credit score, so as you add more cards to your credit report, the average length drops way down. As a result of both of these, you would soon no longer qualify for 0%-interest cards, and in fact some of your older cards may get an increase in their APR.

So that's a definite negative for the new credit card route. As a plus for the home equity loan, the interest that you pay on the loan is (at least in the US) tax-deductible, the same as the interest that you pay on a primary mortgage. This adds only a single new account to your credit report, which avoids the negatives listed above.

Finally, you can shop around for a home equity loan from several lenders and those multiple inquiries, since they are considered a mortgage, are counted as only a single inquiry, while applying with several companies for credit cards in order to shop around would have a major impact on your credit score. Even if you're not planning on opening any other new lines of credit any time soon, your credit score can still affect you. For one thing, many car insurance companies now use your credit score to assess your level of risk, so a lower credit score may result in higher premiums the next time you're up for renewal, even if your driving record was clean.

For another thing, some employers check your credit score before hiring you, because an employee who has trouble managing their finances may have trouble managing the company's resources, and may be more likely to try to steal from the company. Sources: Personal knowledge, plus assorted sites for confirmation and some details .

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