Monday, October 08, 2007 10:03 PM
Can we use a home equity line of credit to pay off our credit cards?
My guess is that you already know the answer to this, but that you want confirmation if it?s a good idea or not. Well, the answer is yes. Yes it?s a good idea and yes it?s a terrible idea.
Why do you have credit card debt? Am I asking you this to try to make you feel badly? Am I trying to scorn and humiliate you? I promise you that I?m not! If you generally have a zero balance but had an unexpected emergency that forced you to use your credit card (a good reason to have an emergency fund, but we?ll get to this another time), tapping into your home equity is permissible.
If you?re a habitual over-spender and credit card user, don?t do it. You need to address the bigger issue, which is your pattern to spend more than you make. I?ve seen too many situations where someone pays off their credit cards with their home equity but then six months later have maxed out their credit cards again. Now they have credit card debt and less equity in their house. Yuck.
The best way to pay off credit card debt is to (1) cut up all of your credit cards right now, (2) call the credit card companies and ask them to reduce your interest rate or you will transfer your balance to another firm and cancel your card, (3) reduce your living expenses, (4) develop an automatic payment plan for each of your cards, and (5) use bonuses or other big money events to chop away at the debt.
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