“Hi Steve,
Heres my question-I recently received a $9K gift. It just so happens I am doing some home repairs immediately that will equal about $9 or $10K. These must be done. I need a new roof right away which is about $5K and the other necessary repairs will be another $5K. I can use that gift to pay for these repairs and its done. However I am also $19K in credit card debt at 8.24% APR purchases and $1K credit card debt on cash advances at 19%.
Should I use the entire gift to pay down the credit card to $11K and then get a home equity for the $10K in home repairs I believe is at 3.74 or 4%? What do you think?? What is my smartest move?
Thanks Steve!
George”
Dear George,
If you don’t have any money in a savings account to fall back on in case of emergencies then I think you should use half the gift money to reduce your credit card debt, save half and get a home equity loan for the home repairs.
You can always contact your credit card company and ask if there is a process to specifically apply $1,000 to the cash advance, I doubt there is. Generally balances are reduced on credit cards with the lowest interest being paid off first.
Please update me on your progress by The Secret of Surviving Through Difficult Economic Times. What I Learned On My Journey‘.
Ohhh, Thank you! I thought for sure i was going to get the much lower variable apr which is around 4.5%. the fixed rate is over 6% which isnt too far off from the credit card rate of 8.24%. hmmmm
George,
My bet is that the variable rate will climb in the years to come. Rates are historically on average higher than they are right now. The only advantage of moving the debt on to the house is that the interest become deductible. Outside of that, moving the 8.24% interest off would not be a major concern but getting to the 19% cash advance balance is. The only way to get to that is to pay off the lower balance on the card.
Steve
Steve, you mention the HELOC – for my home repairs and consolidating the remaining cc balance, do i want a home equity loan or a home equity line of credit?? Which one is recommended? thanks once more 🙂
George
George,
Doesn’t really matter to me as long as it is a fixed rate of interest loan that is manageable for you to handle.
Steve
Hey Steve, Thank you very much! one other question, i DO have a pretty good savings, so if i do use say $7K of this gift to pay down the credit card and then get a home equity for the home repairs, should i also put the remaining $13K credit card balance onto the home equity as well to now have it on the lower rate or should i keep the rest of that on the credit card? Thank again
George
George,
Consolidating the balance into the HELOC is a reasonable approach IF you don’t run the card back up. It will in turn make the interest deductible as long as the total loans don’t exceed the value of the house, and it will payoff the ridiculous interest rate on the card.
Steve