I was wondering if some of you might provide some insight. Recently I obtained a heloc to pay off a rather large amount of revolving credit > 50k. Due to a substantial amount of revolving debt, my fico took a hit, causing me to take a bath on the rate. I have a perfect credit history with 37+ accounts for quite some time, without any problems at all, other than the high debt load. (I am aware of my debt load, and it has nothing to do with frivolous spending. My career choice has necessitated this, and I am in no danger of going bankrupt.) My intention was to relieve my debt load by shifting it to a secured loan. It was my hope that this would push my credit score above 700 so that I would qualify for a competitive interest rate. At least in the short term, it appears my strategy succeeded as my score has gone from 670 to about 710. I now want to get rid of this heloc with high rate=8%. I am hoping to shift it into a hel. Will my strategy pay off? I will have to pay an early termination fee of 250, but a lower rate hel over a longer payback period would be worth it. I plan to ask my heloc lender to match any rate I am considering, but anticipate they wont. Did I make a sound debt management choice?
You exchanged your home equity for credit card bills. Probably not a good idea. Now you want to spread the payments out over a longer period? Get your spending problem under control. Cut up 35 of the 37 cards. Start paying down your home debt.
priapos, Ignore everything gottago says ... every now and then we get some trolls here intending to rile up creditnetters. Don't let him succeed. His attitudes of "pay your debts always", "the lender is always right", "if you have a debt load, then you must be a deadbeat" ring a bell ... we have heard that before ... oh yeah we remember, they are exactly the same attitudes as on MSN Your Money board. Now then, what you propose is a good idea. But the catch-22 situation is that, due to your tanked FICO, you may find it difficult to find a lender willing to do you a home equity loan at a rate < 8%. Good luck in finding such a lender, and pray you would be successful.
My Fico is now above 700 as a result of this first move to the heloc. I believe I will now qualify for very competitive hel rates.
Ok, in my next life I will try to remember not to go to medical school. But thanks for the insight. Further, the tax savings alone more than justify a move to a hel. I am in no danger of losing my home.
Sorry I did not notice that in your first post. If that's the case, then yeah, you should not have a problem in finding an HEL with competitive rates. Also, addressing your question about whether you made a sound financial choice ... it's difficult to judge. It depends on the type of person you are. On one hand, you made an unsecured debt into a secured debt, specifically your home, which is riskier than before because you now risk losing your home. On the other hand, if you are a person who is committed to the idea of paying one's debts in full, and have the capacity and will to do so, you have made a sound decision since you will pay lower interest amount than using the credit cards.
The credit card debt has nothing to do with frivolous spending, and everything to do with pursuing a legnthy and expensive career. I am now in a much better financial situation, with the capacity to expunge all of my debt, including 200k med school loans within 3 years. I will more than likely drag out the med school debt, as the rate is simply too low. This transition of debt that I initiated improved my score, something that is extremely important to me. The risk to my home is non-existant, as it could be payed off in a minutes notice if necessary. My credit score, and ability to borrow at competitive rates is extremely important to me however.
