5 ways to tame your line of credit
By Holden Lewis • Bankrate.com

Lots of consumers have watched the rates double on their home equity lines of credit in two years.

Say you took out a credit line at the prime rate two years ago and borrowed $30,000 against it. Back then, you faced a monthly payment of $100. Now that same loan at the prime rate costs $206 per month.

That's even more dramatic than the rise in gasoline prices.

If you have a home equity line of credit, or HELOC, you have at least five options.

5 options for a HELOC:

1. Keep the credit line and pay down the balance. 2. Keep the credit line and grin and bear the higher interest rate. 3. Pay off the line of credit with a fixed-rate home equity loan. 4. Get a hybrid credit line with a fixed-rate option. 5. Pay off the credit line by doing a cash-out refinance of the primary mortgage.

1. Keeping it
Dennis Grundler of Henderson, Nev., chose the first option. He manages his debts like a corporate chief financial officer, always seeking the best deal. Not counting his mortgage, he has about $67,000 in debts. He could put all of it on his credit line at the prime rate, but most of the debt is spread on various credit cards with introductory rates of zero percent, 1.99 percent or 4.99 percent. The home equity line of credit has a balance of just $12,500, and he says he more than quadruples his minimum monthly payment of about $86. At that pace, he can pay it off in less than three years.

"I am keeping the HELOC because it gives me added flexibility in terms of cash flow," he says. He originally took the line of credit to pay for a pool.

A lot of us don't have the discipline or income to pay down the balance on a credit line, so we have to weigh the pros and cons of the other options.

"The primary decision is between fixed and variable rate," says Simon Griffiths, a home equity executive with Washington Mutual. Home equity lines of credit have variable rates and home equity loans have fixed rates.

2. Keep it and bear it
A lot of those people will do nothing about their credit line, either deliberately or because they just won't get around to making a change. They keep the credit line, resolving to grin and bear the higher rate. After all, the pain probably won't get much worse. Economists and investors believe that the Federal Reserve has almost finished raising interest rates.

Understanding lines of credit
Credit lines work like credit cards: The homeowner can borrow, then pay some or all of the principal, then borrow again. For a few years, the borrower has to pay only the interest on the outstanding balance.

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