Which Is Better: Your Credit Card Or Your Home Equity Line Of Credit?

by Mack Bartlett

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So you bought a beautiful mansion with a home equity line of credit about ten years ago on a twenty year payment plan. You are getting nice and cozy in your new dwelling, but you still have ten more years before it is completely paid off. So you sit there and think about how good you’ve got it, at least compared to the early days when you lived in that one bedroom apartment. But do you really have the best deal you could get? Are you paying more than you need to on your home? You could be, and here’s why.

Using a home equity line of credit has been, through the past, the wise thing to do when buying a home. The interest rates on home equity loans were way cheaper back then, but lately they’ve almost doubled from 4% to around 8%. So is there a way you could save a little money on interest while making payments on your house? There very well could be.

Ever thought of using a credit card?

Many people think the mere idea of transferring your loan from a home equity line of credit to a credit card is absurd. But think about it. The interest rates on a home equity loan are higher than many credit card rates. Using a credit card to pay off your home loan could save you money by lowering your interest rates.

When shopping for the right credit card, remember:

The kind of credit card you use is what will determine whether or not you save. If you shop for a fixed low interest rate on a credit card you’ll save.

The credit limit is important too. It is best and most healthy for your credit score if you find a card that will allow you to raise the limit to about double the amount you owe on your home. That way, once you transfer your balance, it won’t appear to creditors that you came too close to your limit.

Once you have the balance transferred

The worst thing you can do is make a late payment on your credit card, especially since you have such a huge amount to pay back. You should always pay at least the minimum of what you owe so that your interest rates won’t get hiked up. Paying late on credit cards allows them to increase your interest rate dramatically, making you pay even more than you would if you had kept it on a home equity line of credit. Not to mention the fact that late payments show on your credit report. It may be wise to keep your home equity line open so that if this happens, you could transfer the balance back.

Whether it’s a home equity line of credit or a credit card that is the best way for you to pay off your home loan is up to you. Depending on your circumstances, transferring your home loan to a credit card could save you a lot of money.

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