Should You Prefer Your Home Equity Line of Credit or Your Credit Card? (veezq-30114)

They're both great leverage tools, and they both have their pros and cons. Learn more in this article.

Having a home equity line of credit is a good way to pay for your house, but is there a better way? Home equity lines used to have great interest rates, but they've been hiked up in the last few years. So there could be a solution that will save you more money. Depending on who you are and what your financial circumstances are, you could end up saving loads from lower interest rates.

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How? Transfer to a credit card. Though transferring to a credit card may not always be the best solution, it has helped several people save money on their home loan.

Why? Credit cards have the advantage over home equity because they have lower interest rates. There are several ways to compromise these low rates, but if you pay your bill on time and make sure you get the right kind of card, the rate will stay low and save you money.

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If you decide to transfer the balance on your home loan to a credit card, make sure you get a good deal on the interest rates. Some low credit card rates have an expiration date, after which they get hiked up dramatically. Make sure the rate you get is fixed. If not, you could end up paying more interest than you did with your home equity line of credit.

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Make sure the credit limit is high enough. Having such a large amount of money in the balance that you are transferring, you need a high limit to accommodate it. About double the amount that you owe is the ideal credit card limit, because that way it doesn't appear that you've come close to maxing out. This will keep your credit score from going down.

After you've made the switch do NOT make a late payment. Paying on time should be a top priority when it comes to your debt, especially in this case. Paying late can be a severe mistake, because once you've made a payment late, they can raise your interest rates dramatically.

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Going from a low 3.99% interest rate on your credit card to a whopping 18% will end up costing you possibly more than double what you were paying on your home equity line of credit. That is why it is also important that you keep your home equity line open, so that in case such a thing happens, you can transfer your balance back.

Don't use this particular card for anything else. Often times, this low interest rate that you switched to only applies to balance transfers. If you make new purchases with the same card, you may very well have to pay a regular interest rate on those new purchases.

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It is best to just put the card in a safe place and forget that it's there. Just pay on your home loan and don't use the card to buy anything else.

Whether or not a credit card or a home equity line is better is up to you. There are pros and cons to both sides, but it really depends on the homeowner.