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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Tradelite who wrote (2506)	4/30/2002 5:44:49 PM
From: GraceZ	Read Replies (1) \| Respond to of 306849

If I had a huge credit card debt to pay off, would I take the home equity line of credit at 5.75 percent, or the unsecured personal loan at 15.5 percent? Here's the problem with your question, you assume that because you were offered 15.5 for unsecured that 15.5 is the best rate for this type of loan and I can tell you it is not. The other thing is you compare your situation and what is good for you with someone who has a history of credit abuse. Someone who has a history of credit abuse has to cut up the cards, get an installment loan and learn some discipline. If they simply roll their debt into a revolving line of credit secured on the house they have effectively chosen a course that has taken them down the primrose path previously. I was once called in to help a friend figure out what happened when she had put a used car purchase on her home equity line of credit, because ten years had passed and she still owed $6000 on $10000 initially borrowed even though according to her she paid an amount equal to a car payment every single month. The rate was fairly low, not as low as todays rate, but reasonable. I printed out an amortization schedule for her based on an installment loan over five years, at the interest she was paying for the original amount she borrowed. Then we looked at her statements on the LOC. What she was missing was that she had been very good about making the payments up to about the midway point, but then she borrowed an amount back that was more than the amount of principle she would have paid on an installment loan. (installment loans are front loaded for interest with most of the principle paid in the second half of the term) She was really good, again for 2 and a half more years and did the same thing. At any rate those mistakes turned that car loan into a 12 year loan instead of a five year. I would always suggest that people who are in credit trouble try to reduce their interest rate to the lowest possible, but they should choose a loan with a fixed term and payment even if its interest rate is a little higher than the revolving simply because they need to have a payment that they have to make, with no opportunity to borrow back the money they paid off if they are to have any possibility of paying off that debt. There is nothing sadder than figuring out that you paid interest on money borrowed for a vacation or a car for twenty or thirty years.