Consumer debt vs HELOC

[EconoMutt]

I have around $11,000 in consumer debt.
I am currently saving towards an emergency fund.
Would it make sense to pay the unsecured debt with my HELOC?
It's currently at 4.5% and would free up some money so I could fund the emergency fund quicker.
Suze Orman says never use a secured credit line to pay unsecured debt.

[Broken Arrow]

What is the interest rate on the unsecured?

What is the limit on the HELOC?

[EconoMutt]

What is the interest rate on the unsecured?

What is the limit on the HELOC?

Unsecured is a bunch of smaller debts. Average = 8.9%

HELOC = 4.5%

[disneysteve]

I think the important question is if you have your spending totally under control at this point. The problem many people make is they borrow against their home's value to pay off consumer debt - credit cards, auto loans, etc. Then, once their credit cards have open lines, they proceed to charge them up again, ending up in even worse shape.

If you are now living below your means consistently, using home equity to pay off higher interest debt can be a good idea. You just have to be responsible enough to not get into further consumer debt.

[EconoMutt]

I think the important question is if you have your spending totally under control at this point. The problem many people make is they borrow against their home's value to pay off consumer debt - credit cards, auto loans, etc. Then, once their credit cards have open lines, they proceed to charge them up again, ending up in even worse shape.

If you are now living below your means consistently, using home equity to pay off higher interest debt can be a good idea. You just have to be responsible enough to not get into further consumer debt.

My credit cards are normally paid in full each month.
This debt is from a wedding, honeymoon and a car that died right after.

[disneysteve]

My credit cards are normally paid in full each month.
This debt is from a wedding, honeymoon and a car that died right after.

Since those were all one-time events and your spending is otherwise not an issue, I'd see nothing wrong with shifting to a lower rate source of funds. The HELOC rate is variable and rates are probably going to be heading up, but they won't be anywhere near 8.9% any time soon.

The key is that once you move the money to the HELOC, keep making the exact same monthly payment (or more) so that you retire the debt faster.

[GREENBACK]

It's actually going to be lower than 4.5% with the tax deduction factored in but as DS said, you must have the financial discipline to not charge things up again that you can't pay for immediately.

[wincrasher]

Suze's advice is wise from a risk standpoint.

4% difference (excluding the tax benefit) on $11k is not alot of money - especially if the term is short. Actually 8.5% on unsecured is a pretty good rate. Also, at 4.5% on a HELOC is a fantastic rate, surprised you can even get a HELOC these days. Most people are having theirs eliminated.

Is that difference worth the risk? If you feel very secure in your job, and you have a decent EF if something comes up, then it may be worth it.

[disneysteve]

Suze's advice is wise from a risk standpoint.

I believe the main reason for Suze's advice is what I stated earlier. Something like 66% of people who use a HEL to pay off credit card debt are back in CC debt a year later. Then, however, they've got both the CC debt and the HELOC to deal with.

OP, I'll admit I'm a little concerned in your situation because you felt it appropriate to go into debt to finance a wedding and a honeymoon, both luxury purchases, totally "wants" not "needs". What other luxury purchases in the future might you be equally willing to make with borrowed money? If the answer is firmly that you will never again buy something that you can't afford to pay for, do the HELOC. If, however, you might be willing to borrow to pay for some other "once in a lifetime" experience, I'd stay away from the HELOC.

[EconoMutt]

I believe the main reason for Suze's advice is what I stated earlier. Something like 66% of people who use a HEL to pay off credit card debt are back in CC debt a year later. Then, however, they've got both the CC debt and the HELOC to deal with.

OP, I'll admit I'm a little concerned in your situation because you felt it appropriate to go into debt to finance a wedding and a honeymoon, both luxury purchases, totally "wants" not "needs". What other luxury purchases in the future might you be equally willing to make with borrowed money? If the answer is firmly that you will never again buy something that you can't afford to pay for, do the HELOC. If, however, you might be willing to borrow to pay for some other "once in a lifetime" experience, I'd stay away from the HELOC.

I shouldn't have to borrow in the future.
That's why I'm trying to fund 3 to 6 month's expenses as soon as possible.

[arthurb999]

try to do a balance transfer deal... like 0% for 12 mths, 2.99 on life of bal transfer, etc.

[EconoMutt]

try to do a balance transfer deal... like 0% for 12 mths, 2.99 on life of bal transfer, etc.

I looked in to that.
It seems like there's a catch to most of those offers.
I found one at 1.99%, but there was a transfer fee of 3%

[lovcom]

OP, I'll admit I'm a little concerned in your situation because you felt it appropriate to go into debt to finance a wedding and a honeymoon, both luxury purchases, totally "wants" not "needs". What other luxury purchases in the future might you be equally willing to make with borrowed money? If the answer is firmly that you will never again buy something that you can't afford to pay for, do the HELOC. If, however, you might be willing to borrow to pay for some other "once in a lifetime" experience, I'd stay away from the HELOC.

I agree with DisneySteve. Starting a new marriage in debt is not a good start IMHO. It would be far better to pay for everything in cash, and until that can be done, the wedding should be postponed.

[disneysteve]

I agree with DisneySteve. Starting a new marriage in debt is not a good start IMHO. It would be far better to pay for everything in cash, and until that can be done, the wedding should be postponed.

These things are already in the past, so this advice doesn't really apply here.

In general, though, I agree with you. People shouldn't borrow money for luxury purchases.

[EconoMutt]

I agree with that. We did save for the wedding, but things just kept running over budget. I also had an old car that was supposed to last for another year, but didn't.
I didn't foresee that I would have to get rid of the car instead of repairing it.