My mother is looking to take out a $10,000 loan to pay back over the next 5 years in the near future. We are weighing our choices and trying to figure out the best way to approach this. She wants the lowest interest rate and doesn't't know if she should a) borrow against her retirement (about 6% interest) b) take out a home equity loan (not sure interest rate range), but she might not have equity since she refinanced this summer or c) take out 10,000 from her 12,500 credit card which is at about 8.99% interest. Or is there another option like a personal loan? I assuming the key is to try to get the lowest interest rate possible, but I do not know enough about finances to point her in the right direction. Any help would be greatly appreciated.
my checking overdraft has 9000$ at 5.9% but i have a 2.9% for life BT from citi, so i'd take the loan then BT for life and pay 2.9% for life, imo. If you can do it on business lines, even better, no report on credit as utilization.
What would you say is the best balance transfer card? It sounds like a good idea, current she has 7.9% bt she could do on her 12,500 MBNA card, but would it be worth applying to a card with a better balance transfer rate?
Be careful with bal transfer options...make sure they cannot change the interest rate on her down the road. If she gets other CCs or loans, the issuing bank for the CC she takes the money on may decide her debt ratio is too high and raise her interest rate. Also, with CC's, it is a revolving balance. Unless she pays like $1000/mo, that balance is not going to go down as quick as it will on a promissory note. A personal loan is an option but for no collateral, she has to have almost perfect credit, unless she has $10k worth of collateral laying around to put up for the loan. I would say go with the loan against the retirement if she has that much invested in it. Usually they will only allow you a max of 50% usage, based on your total invested leaving the remaining 50% as a bond or collateral. I don't think a personal loan will get an interest rate that low. I am speaking from experiance here, and what I have stated above has all happened to me. It of course is only my opinion though on what to do! Good luck!
Thanks, this is the type of info I need. Right now we are leaning towards borrowing from her retirement, the money is there, but something just doesn't feel right about taking money out of those investments, even if she will be paying it back. The balance transfer idea seems like it might work, and she is planning on paying 250 a month towards the loan/bt so I'm not worried about the length of time. (should be like 5 yrs). But I don't know know everything about revolving balances, so let me know if I got something wrong. We just want to make sure that we get to keep that bt rate for the entire time, cause if it went up on her, that would be very bad. Her credit is good (700+), but I don't think she will get a personally loan with a low enough interest rate. I don't understand equity enough to know if that home equity home loan is even an option. Simply, we want to get her the lowest rate with an option that has fewer chances of back firing on her. Thanks again for the feedback, it is really helping.
The bal trans theory works as long as the bank does not mess with the interest rate EVER (yeah right!)...it should take about 4 yrs (+ or -) to pay off $10k, at $250/mo, at 6%. cut and past this link in your browser and you play around with the figures: http://cgi.money.cnn.com/tools/debtplanner/debtplanner.jsp Hope this helps.
I think the best deals out there right now are Citi balance transfers. They have 3.99% or 4.99% for life of loan. I just got $5000 last night. In most cases, they'll send you a check and you can deposit it in your account to use as you want. They will tell you the terms. Mine said that they won't change the rate as long as you don't default on any account with them. Watch what accounts you have with them. For example, my Citgo is Citi. I have all of my Citi accounts either on autopay for the minimum or on a notification. The autopay automatically drafts the minimum payment from your account on the due date. They send you a statement every month and tell you what day and how much they will draft. You can make additional payments if you like, but you know you won't default this way. My Citgo doesn't offer autopay (they may now, but they didn't when it first converted to Citi) so I have them e-mail me a notice 5 days before it's due and I can go online and pay. So I'm fairly comfortable that I won't violate their terms by defaulting on one of their accounts. My BT is at 3.9%, so I probably will never pay more than the minimum. I can invest and get more than that.
Also, if she can get a home equity loan, see what the rate is. Remember that the interest may be tax deductible, depending on her mortgage situation. If it is, adjust the rate for the tax advantage and compare to some other offers.
