|by Mr Credit Card|
Aleksandra Todorova from Smart Money just wrote an article When Credit Card Debt is better than Home Equity Debt?.
In his article, he mentioned a couple who had problems refinancing their adjustable mortgage loan because they had taken on a home equity line of credit. He then went on to say how they actually solved this by transferring their HELOC to a balance transfer for life credit card. He also mentioned with HELOC now at about 7-8% versus 1.99% to 4.99% for balance for life credit card deals, it sense to consider switching out of HELOC to a balance transfer credit cards.
Aleksandra was also smart enough to caution that though the interest rate may be lower for a balance transfer for life card these days, you may end up with a higher monthly payment because with credit cards, you now have to pay a 4% minimum payment of your balance every month. Hence, even though a credit card can offer you a balance transfer for life card, in reality, it is really just for 25 months, slightly over 2 years.
My thoughts on this article are as follows :
1. Firstly, it is always better to have credit card debt than HELOC. The reason is because credit card debt is unsecured debt whereas a HELOC is a secured debt. If you miss on your payments on your HELOC, you can eventually have your home foreclosed. That can never happen with your credit card debt.
2. Secondly, I disagree with the idea that you should not get a 0% APR Balance Transfer credit card but should rather get a balance transfer for life card. The reason for this misconception is because I think the author did not bother to calculate that if you pay 4% minimum payment, you will totally pay down your balance in 25 months. The better solution is to actually transfer your HELOC into a 0% balance transfer credit card with a 12 month deal. Once your introductory period is up, transfer them again until you pay off your balance after 2 years.
Despite this, the article has merit in that if you have a HELOC right now and it is preventing you from refinancing your existing mortgage, then by all means transfer them to a credit card that offers a balance transfer deal. But transfer them to a credit card that offers a 0% apr, not one with a fixed balance transfer for life deal.