HelocBasics » credit cards

Need Emergency Cash? Credit Cards vs. HELOCs

Jamie — Wed, 11 Mar 2009 06:01:39 +0000

Due to the troubled economy, many homeowners are looking for sources of emergency cash. If you need funds to get you through the next few months because of unemployment or other circumstances, consider the source carefully.

Credit Cards: Using a credit card cash advance is an easy and quick way to withdraw a large sum of money. But, be sure to read your terms carefully. Many credit card issuers have been raising interest rates during the past few months. Others are cutting back on limits. Overall, credit cards have substantially higher interest rates than HELOC loans. Also, if you are just a little late on one payment, your rate could jump permanently. If you become delinquent on a credit card, the late fees can become outrageously high – sometimes even exceeding the original debt. Sometimes credit card issuers will work with delinquent borrowers. However, some people end up needing to declare bankruptcy to get out from under their snowballing debt.

HELOC Loans: Taking out a home equity line of credit instead of a credit card cash advance can be a smart idea. HELOCs generally have much lower interest rates and borrowers are often able to withdraw a larger amount. However, this option is more risky if you end up having trouble paying the money back. A HELOC is a secured loan that uses the homeowner’s property as collateral. Don’t pay back your HELOC and you may loose your home. Worse: in some states you may be liable for the remaining debt even after your home is sold as a foreclosure.

As you can see, there’s no right answer here. If you need some emergency cash fast, consider your circumstance and your expected financial stability over the next few months.

See Also:

HELOC Foreclosures

How a HELOC Works

Bad Credit Card Terms Make Home Equity Loans More Attractive

Jamie — Sat, 07 Mar 2009 00:44:56 +0000

As banks are hit hard by the the financial crisis, they become more stingy with their credit card offers. In many cases, they’re cutting the lines of existing customers and increasing their rates.

The American Chronicle reports:

“Today, rates for more than half of all cardholders have skyrocketed while interest rates are at their lowest levels in history. At the same time, mostly for very little reasons, credit limits keep being cut…

If you have a low-rate card, you will likely be “blackmailed” into choosing an increased 5% payment or a higher rate at your current payment. Card issuers want to get rid of you and your low rate. If possible, take the higher payment and keep the cool rate.”

HELOC borrowers have faced some of the same problems in the form of line reductions. But, in general, HELOC lenders are not able to change the terms of the line through raising the minimum payment.

Many people who already have a HELOC are choosing to stick with it, and are sometimes withdrawing funds early to protect against line cuts. But, if you’re still looking for a way to borrow money, you may want to take out a home equity loan rather than a HELOC (home equity line of credit) or another type of loan. Home equity loans tend to have higher fees than HELOCs, but borrowers are safe from unexpected linen cuts.

Is a HELOC Right for You?

Q: Will Paying Off Credit Cards with a HELOC Improve My Credit Score?

Jamie — Mon, 06 Oct 2008 04:43:27 +0000

If you are using over 40% of your available credit, paying off your credit cards with a HELOC may improve your credit score. However, there are some risks involved.

Applying and opening a HELOC will give your credit score a ding. However, you may be able to increase your score significantly by transferring your credit card debt to your home equity line of credit. How much your score will improve depends on the limit of your credit line. Lower limit HELOCs are generally recorded as revolving lines of credit when determining a borrower’s FICO score. Higher limit HELOCs are generally recorded as mortgages or installment loans.