|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. 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.
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.