Transfer HELOC to Balance Transfer Credit Cards?
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.