Credit card vs HELOC

JCD92997 · #1 (**permalink**) 09-16-2007, 10:33 PM

This could actually go in the mortgage forum as well, so if it needs to be moved that's fine.

Here is my situation: I have about $2000 or so worth of home improvements I want to do to my home, which I just purchased about 3 months ago so I don't have a lot of equity in it now.

I am considering both a home equity line of credit and credit card financing. One of my credit cards is offering 0% financing w/ 2% transfer fee for 18 months on any balance transfers. I believe prime rate right now is around 8.25%, so that's probably what my rate would be on a HELOC. I would also have to pay for an appraisal to get the HELOC.

My question is, would it be better to make the purchases I need to on another credit card then transfer it to the one offering the 0% financing, or to try and go with the HELOC? It seems like I would be saving quite a bit by using the credit card.

Thoughts anyone?

Dru · #2 (**permalink**) 09-17-2007, 02:58 AM

You mentioned these are improvements, not mandatory repairs. You also just purchased the home with "no equity" so having an appraisal to get a "Home Equity Line of Credit" seems out of reason.

Instead of using credit and ending up paying 20-50-100% more with payments over time, why not scrimp for a few months and save up by making the credit card payments to yourself. If you put it into a money market account (something like EmigrantDirect bank or ING orange) your interest will help you get there much quicker. Work a few extra hours and stop all spending over the bare necessities and you will be far ahead in just a couple of months.

James13242 · #3 (**permalink**) 09-17-2007, 09:10 AM

I agree 100% with Dru. $2,000 is not a ton of money. I would now want to increase my debt after just buying a home. Also, check the terms of that 0% account very well. Chances are that if you do not pay off the balance in full before the 18 months expire, you will pay interest back through day-1. Improvements are something that you can budget for. Feeling the need to finance them is an indiction of extending yourself beyond your income.

JCD92997 · #4 (**permalink**) 09-17-2007, 10:54 AM

Thanks for the response guys. It's always good to have advice from people with an outsider's perspective.

Taking into advice what you've said, let me ask another question. First, I do have equity in my home, just not much (around $8,000, probably a little more by now). But I don't need nearly that much. Actually, of the $2,000 I would say I only need about $800 right now.

Now I could pay this off right now, but I would rather keep the money where it is right now. It's definitely making more than the $16 I would get charged with the transfer fee for the $800. The monthly payments are not an issue, I'll probably pay off the balance in half that time.

I don't plan on getting into the balance transfer game to finance any more of my improvements, this was just a one time idea for one project.

Hermes · #5 (**permalink**) 09-18-2007, 07:07 AM

If you only need $800 and are able to pay it cash I would recommend you do that but if you insist on using your credit card then I would pay it off with two monthly payments of $400.

Depending on what type of credit card you have (some offer roughly 60 days to repay your balance without charging interest rates) you would 'borrow' $800 from your credit card and repay the same amount if you're able to make those $400 payments.

Watch out for those '0% interest over several months' and read the contract very carefully.

tibunola · #6 (**permalink**) 10-17-2007, 10:42 AM

great deal !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

1wealthbuilder · #7 (**permalink**) 10-17-2007, 11:12 PM

If it was a larger sum of money and you had to pay interest, The numbers may have worked in the HELOC's Favor, especially with the tax break.

You may want to still apply for the HELOC for safety in case of Medical Emergency, Natural Disaster or Downsizing. But, you must be disciplined to not consume your equity.

Better to have it and not need it than to need it and cant get it!

Estreetloans · #8 (**permalink**) 10-19-2007, 03:17 PM

Absolutely right wealth builder. HELOC can be utilized as emergency funds, and it is a nice peace of mind when a disaster strikes and you are more than prepared. Credit Cards will always be a loose in the long run, it seems they always "get ya".

Easy To Get Credit Cards · #9 (**permalink**) 11-04-2007, 08:46 AM

Consider using a mileage card, then transfer the balance into the 0%.***
If the interest rate is fixed for the entire term great if not do this.
Once you are on the home equity, make your payments weekly instead of monthly. This will keep you in the habit of paying when the interest kicks in and you will knock it out before it really does anything to you. Principal payments!!

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