Should You Consolidate Credit Cards with Balance Transfer Offers or Home Equity Loans
Using a balance transfer credit card to consolidate your credit card debt is a better option compared to borrowing against a home equity loan. A home equity loan is often considered a second mortgage so the interest fees will typically be lower. Despite that, it has expensive closing cost that can costs up to a few thousands dollars. There will also be early repayment fee if you attempt to repay the loan before the end of the loan term. There are a lot of home equity lenders do not follow the underwriting guidelines so that the loan is priced above the market rate.
Another disadvantage of home equity loan is that it will put your house at risk. You don’t know what will happen in the future that can prevent you from paying the home equity loan. For example, you may get unemployed suddenly or met with a serious accident that prevent you from working. In this case, it will devastate your financial situation and causes you to lose your home to foreclosure. It can also force you to file for bankruptcy to get out of your financial problems.
On the other hand, a balance transfer credit card is safer and cheaper way for you to consolidate your credit card debt. Balance transfer card allows you to transfer balances from other credit cards up to the credit limit of the card minusing the balance transfer fees. Some balance transfer cards that do not have intro period promotion offer low interest rates. There are many brand name balance transfer credit cards now offering zero interest intro rate.
Zero interest intro period means you won’t be charged with any interest fee. You can take advantage of the zero interest intro period to repay your credit card debts. Without the interest fees, you will be able to pay down your credit card debt faster. This prevents you from having to drag your credit card debt from year to year as when you are paying via the traditional way on your high interest credit card.
The balance transfer credit card does not have any early repayment penalty fee like home equity loan. The faster you pay down your credit card debt, the faster you can get out of it. Besides, consolidating your credit card debts into a single balance transfer card allows you to only make a one time payment every month. This prevents you from forgetting the due date of each credit card you owe on and getting hit with late payment penalty fee. The key to get out of debt is to develop good spending habits. This means you should not stop using credit card for purchases if you have a habit of overspending on your credit card.