Editor's ChoiceCategories Credit Type Issuers Blog

Transfer HELOC to Balance Transfer Credit Cards?

01/27/2007

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.

RELATED POSTS
2 Comments
February 4, 2007 @ 12:42 am

I agree with 100% on both point 1 & 2.

I think it’s also very important to note that if you are going to try to “surf” 0% intro APR offers, you need to make sure that your credit score stays high. You could qualify for a great 0% deal one year, then, when it comes times to transfer to a new 0% deal, your may get rejected if your FICO score has declined significantly.

Reply
May 22, 2007 @ 4:06 pm

I did this exact thing, although I wasn’t able to get a 0% balance transfer – I had to settle for a 2.9%. Still considerably better than the 10% that my HELOC was at previously, and now I’m paying off the principle.

Credit cards are a very useful tool, if you can use them smartly. The key with this plan is to not miss (or be late) with any payments.

Reply

Leave a Reply

Your email address will not be published. Required fields are marked *


*


Privacy Policy Terms and Conditions About Me Disclosure Contact Me

Newsletter Sign Up

Name

Email