Addicted to debt

[kev374]

there are no serious consequences for irresponsible behavior, that just encourages it. If people could not declare bankruptcky or walk away from their obligations and their wages were garnished for life till they paid what they owed back then this type of behaviour would come to a close real quick.

[EconProf]

BobS
This device is actually a smart policy if he has his facts straight and has the will-power to pull it off (both questionable).
Consider: why not pay down your LOC by $60k for one year, borrowing the same amount for 0% interest from credit cards? Assuming he is avoiding, say, 7% interest on the LOC, that’s $4,200. He just has to have the gumption to pay off the $60k card debt in one year by tapping into his HELOC (assuming it hasn’t been unilaterally reduced by the bank). I really question his assertion that credit card companies are giving 1 year interest-free loans this way…they may be demonstrably stupid, but are not suicidal.

[EconProf]

BobS
This device is actually a smart policy if he has his facts straight and has the will-power to pull it off (both questionable).
Consider: why not pay down your LOC by $60k for one year, borrowing the same amount for 0% interest from credit cards? Assuming he is avoiding, say, 7% interest on the LOC, that’s $4,200. He just has to have the gumption to pay off the $60k card debt in one year by tapping into his HELOC (assuming it hasn’t been unilaterally reduced by the bank). I really question his assertion that credit card companies are giving 1 year interest-free loans this way…they may be demonstrably stupid, but are not suicidal.

[EconProf]

BobS
This device is actually a smart policy if he has his facts straight and has the will-power to pull it off (both questionable).
Consider: why not pay down your LOC by $60k for one year, borrowing the same amount for 0% interest from credit cards? Assuming he is avoiding, say, 7% interest on the LOC, that’s $4,200. He just has to have the gumption to pay off the $60k card debt in one year by tapping into his HELOC (assuming it hasn’t been unilaterally reduced by the bank). I really question his assertion that credit card companies are giving 1 year interest-free loans this way…they may be demonstrably stupid, but are not suicidal.

[EconProf]

BobS
This device is actually a smart policy if he has his facts straight and has the will-power to pull it off (both questionable).
Consider: why not pay down your LOC by $60k for one year, borrowing the same amount for 0% interest from credit cards? Assuming he is avoiding, say, 7% interest on the LOC, that’s $4,200. He just has to have the gumption to pay off the $60k card debt in one year by tapping into his HELOC (assuming it hasn’t been unilaterally reduced by the bank). I really question his assertion that credit card companies are giving 1 year interest-free loans this way…they may be demonstrably stupid, but are not suicidal.

[EconProf]

BobS
This device is actually a smart policy if he has his facts straight and has the will-power to pull it off (both questionable).
Consider: why not pay down your LOC by $60k for one year, borrowing the same amount for 0% interest from credit cards? Assuming he is avoiding, say, 7% interest on the LOC, that’s $4,200. He just has to have the gumption to pay off the $60k card debt in one year by tapping into his HELOC (assuming it hasn’t been unilaterally reduced by the bank). I really question his assertion that credit card companies are giving 1 year interest-free loans this way…they may be demonstrably stupid, but are not suicidal.

[DaCounselor]

Sounds like a potentially dangerous strategy to me. Regarding the $60K balance transfer, I have not seen a no-fee deal recently – they may be out there but what I am seeing is typically a 3% fee deal with no cap. On $60K, that’s $1800 in fees. The $4200 HELOC interest is tax deductable, so you are probably looking at about $3K out of pocket. So you are probably looking at saving a little over $1K for the year. Is this enough savings to offset the risk of a HELOC reduction to the point where you can’t draw to pay off the CC? If you get stuck in the CC your carrying costs will be huge – you are looking at monthly minimum payments in $1200-1800 range on the $60K – ouch. Compare that to a HELOC payment of what – about $400-450/month on $60K? Personally, I would pass on this strategy.

[DaCounselor]

Sounds like a potentially dangerous strategy to me. Regarding the $60K balance transfer, I have not seen a no-fee deal recently – they may be out there but what I am seeing is typically a 3% fee deal with no cap. On $60K, that’s $1800 in fees. The $4200 HELOC interest is tax deductable, so you are probably looking at about $3K out of pocket. So you are probably looking at saving a little over $1K for the year. Is this enough savings to offset the risk of a HELOC reduction to the point where you can’t draw to pay off the CC? If you get stuck in the CC your carrying costs will be huge – you are looking at monthly minimum payments in $1200-1800 range on the $60K – ouch. Compare that to a HELOC payment of what – about $400-450/month on $60K? Personally, I would pass on this strategy.

[DaCounselor]

Sounds like a potentially dangerous strategy to me. Regarding the $60K balance transfer, I have not seen a no-fee deal recently – they may be out there but what I am seeing is typically a 3% fee deal with no cap. On $60K, that’s $1800 in fees. The $4200 HELOC interest is tax deductable, so you are probably looking at about $3K out of pocket. So you are probably looking at saving a little over $1K for the year. Is this enough savings to offset the risk of a HELOC reduction to the point where you can’t draw to pay off the CC? If you get stuck in the CC your carrying costs will be huge – you are looking at monthly minimum payments in $1200-1800 range on the $60K – ouch. Compare that to a HELOC payment of what – about $400-450/month on $60K? Personally, I would pass on this strategy.

[DaCounselor]

Sounds like a potentially dangerous strategy to me. Regarding the $60K balance transfer, I have not seen a no-fee deal recently – they may be out there but what I am seeing is typically a 3% fee deal with no cap. On $60K, that’s $1800 in fees. The $4200 HELOC interest is tax deductable, so you are probably looking at about $3K out of pocket. So you are probably looking at saving a little over $1K for the year. Is this enough savings to offset the risk of a HELOC reduction to the point where you can’t draw to pay off the CC? If you get stuck in the CC your carrying costs will be huge – you are looking at monthly minimum payments in $1200-1800 range on the $60K – ouch. Compare that to a HELOC payment of what – about $400-450/month on $60K? Personally, I would pass on this strategy.

[DaCounselor]

Sounds like a potentially dangerous strategy to me. Regarding the $60K balance transfer, I have not seen a no-fee deal recently – they may be out there but what I am seeing is typically a 3% fee deal with no cap. On $60K, that’s $1800 in fees. The $4200 HELOC interest is tax deductable, so you are probably looking at about $3K out of pocket. So you are probably looking at saving a little over $1K for the year. Is this enough savings to offset the risk of a HELOC reduction to the point where you can’t draw to pay off the CC? If you get stuck in the CC your carrying costs will be huge – you are looking at monthly minimum payments in $1200-1800 range on the $60K – ouch. Compare that to a HELOC payment of what – about $400-450/month on $60K? Personally, I would pass on this strategy.

[lonestar2000]

There’s another gotcha with transferring debt to 0% interest credit cards. Default on just one card, or simply make a single late payment, and they bump you right up to the default rate, on all of them! Last time I checked these are in the 20%+ range.

At the same time your HELOC is being pulled back, and your house is probably worth even less then it was six months ago.

Can you say ‘perfect storm’?

[lonestar2000]

There’s another gotcha with transferring debt to 0% interest credit cards. Default on just one card, or simply make a single late payment, and they bump you right up to the default rate, on all of them! Last time I checked these are in the 20%+ range.

At the same time your HELOC is being pulled back, and your house is probably worth even less then it was six months ago.

Can you say ‘perfect storm’?

[lonestar2000]

There’s another gotcha with transferring debt to 0% interest credit cards. Default on just one card, or simply make a single late payment, and they bump you right up to the default rate, on all of them! Last time I checked these are in the 20%+ range.

At the same time your HELOC is being pulled back, and your house is probably worth even less then it was six months ago.

Can you say ‘perfect storm’?

[lonestar2000]

There’s another gotcha with transferring debt to 0% interest credit cards. Default on just one card, or simply make a single late payment, and they bump you right up to the default rate, on all of them! Last time I checked these are in the 20%+ range.

At the same time your HELOC is being pulled back, and your house is probably worth even less then it was six months ago.

Can you say ‘perfect storm’?

[Author]

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