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HOME EQUITY LINE OF CREDIT - Good idea or bad idea?

post #1 of 17
Thread Starter 
DH and I are looking into opening a small home equity line of credit (roughly around $10,000). This would help us tremendously to clean up all of our debt, and hopefully buy a minivan which is what we desperately need right now.

Our interest rate would be between 4.78 and 8% but it's a variable interest rate which changes monthly. After speaking with our insurance rep, it seems as though the likelihood of it ever increasing is slim, but, that being said, she did say she at once saw it around 9.75% sometime last year.

What do you girls think? We'd have 7 years to pay it off and if we were approved at the highest rate (8%), our monthly payments would be around $150.00 which is a lot less than what we are paying now for the cc's and what not. AND, we could claim the interest paid on the loan on our taxes at the end of the year.

So what do you guys think? Good idea or bad idea? Any suggestions would be just FABULOUS!

TIA!!!
post #2 of 17
Bad. I don't like the idea of using something secure (and possibly losing) to pay for something unsecure. If you don't pay your credit card bills, they can take you to collections, but can not take your house. If you pay those things with a home equity loan, and something unforseen happens (loss of job, disability, etc), and you can't pay on it, they CAN take your house.
No amount of credit card debt would force me to make such a decision and put my HOUSE in jeopardy. If it were me, I'd just suck it up and scrimp and save to pay the credit debt off. This, coming from a girl who managed to pay off over $22,000 in consumer debt in one year. My house is worth more to me than that.
JMO. Good question though!!
post #3 of 17
Don't do it. After the term of your equity line is up, you have to roll it over into a new line, a new loan, or have it paid off. What if the economy gets so bad there is no money to loan at the end of the line term, and you can't get another one, and you can't pay it off?
post #4 of 17
Thread Starter 
Quote:
Originally Posted by Pianolady View Post

Don't do it. After the term of your equity line is up, you have to roll it over into a new line, a new loan, or have it paid off. What if the economy gets so bad there is no money to loan at the end of the line term, and you can't get another one, and you can't pay it off?

That's a good question. I hadn't even thought of that. I guess we should just suck it up and pay off all our debt. We don't have very much ($7200.) So I guess we could definitely pay that off in a year....not even...

Thanks for the advice!
post #5 of 17
Do not take an unsecured debt (credit cards) and secure it with your house.
post #6 of 17
Quote:
Originally Posted by chopey View Post

Bad. I don't like the idea of using something secure (and possibly losing) to pay for something unsecure. If you don't pay your credit card bills, they can take you to collections, but can not take your house. If you pay those things with a home equity loan, and something unforseen happens (loss of job, disability, etc), and you can't pay on it, they CAN take your house.
No amount of credit card debt would force me to make such a decision and put my HOUSE in jeopardy. If it were me, I'd just suck it up and scrimp and save to pay the credit debt off. This, coming from a girl who managed to pay off over $22,000 in consumer debt in one year. My house is worth more to me than that.
JMO. Good question though!!

Quote:
Originally Posted by Pianolady View Post

Don't do it. After the term of your equity line is up, you have to roll it over into a new line, a new loan, or have it paid off. What if the economy gets so bad there is no money to loan at the end of the line term, and you can't get another one, and you can't pay it off?

I agree with both posts above from some very wise ladies.

Quote:
Originally Posted by tepinckney View Post

That's a good question. I hadn't even thought of that. I guess we should just suck it up and pay off all our debt. We don't have very much ($7200.) So I guess we could definitely pay that off in a year....not even...

Thanks for the advice!

$7200 is really do-able. You can do this. You could even put a ticker in your signature line if you like. I find that kind of thing really motivating. A year from now, you will be debt free and your house will be secure.

It will mean a very simple Christmas and cutting back in many areas of your life for the short term but it will be worth it for the freedom that comes with being debt free.
post #7 of 17
For us right now, we are not looking for any "quick fixes" that require us to go into debtin any other way. Basically, the only fix is to make more money, or spend less money, and pay off all of the debt.
post #8 of 17
Thread Starter 
My you guys are great! You're suggestions really have helped and I'll talk it over with DH this evening.

Thanks again!!
post #9 of 17
And technically, it isn't tax deductible. By law, you're supposed to deduct ONLY the portion of your home equity loan that was used for home IMPROVEMENTS (not even home repairs count!) You're supposed to perform a complicated little calculation to remove the portion of the interest you paid that is taxable AND you have to perform that calculation forever and ever as long as you deduct a portion of your mortgage interest on you taxes - EVEN IF YOU REFINANCE LATER! It is a mess. Obviously, a lot of taxpayers either lie on their taxes or they don't know better but an IRS audit could result in some nasty surprises.
post #10 of 17
Thread Starter 
Quote:
Originally Posted by Cookie2 View Post

And technically, it isn't tax deductible. By law, you're supposed to deduct ONLY the portion of your home equity loan that was used for home IMPROVEMENTS (not even home repairs count!) You're supposed to perform a complicated little calculation to remove the portion of the interest you paid that is taxable AND you have to perform that calculation forever and ever as long as you deduct a portion of your mortgage interest on you taxes - EVEN IF YOU REFINANCE LATER! It is a mess. Obviously, a lot of taxpayers either lie on their taxes or they don't know better but an IRS audit could result in some nasty surprises.

Wow..I did not know that. And it's funny, our insurance rep didn't tell us about any of that! She just told us that we could claim the interest on our taxes, just like we would with our mortgage. I didn't know that it was contingent on using the line of credit for home improvement. Heck, we have all the receipts for our home improvements that we've used our credit cards for! That's why we're in this mess in the first place!

Thanks for opening my eyes on this subject. It sure is enlightening!!
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