Paying off credit cards with Home Equity Loan?

[PrincessGrownUp]

In a few days, DH and will see the funds from our Home equity loan in our bank account. With those funds, we will pay off DHs truck (about 3k) and the rest will be used to just about pay off all of our credit card debt. One of the cc's has a balance of approx 10k. Do I just pay it (online) like I normally do? Should i expect any complications, for example my account being flagged, etc?
Also, one of the cc's is a Citi Rewards account. I've tried to find this info online, but I can't find it - do I still get the rewards? I know they are awarded when you pay off the purchase vs. when you make the purchase (like the Disney card). For the citi rewards, I know you don't get the rewards if it's paid off by transferring the balance to another cc, so I was wondering about paying it with the loan.
I know these seem like silly questions, but with my luck I'd be missing something important and be penalized for it. I'm nervous about dealing with a large amount of money and I want to make sure I'm not missing anything.
I'll take any info anyone wants to give me.

 

[Alexle2007]

Won't you just be depositing the HELOC into your checking account? So then when you pay-off the credit cards, it will look like any other payment that you have been making. Just that instead of making a minimum payment or paying a little extra, you'll being paying it in full.

 

[scrapquitler]

In a few days, DH and will see the funds from our Home equity loan in our bank account. With those funds, we will pay off DHs truck (about 3k) and the rest will be used to just about pay off all of our credit card debt. One of the cc's has a balance of approx 10k. Do I just pay it (online) like I normally do? Should i expect any complications, for example my account being flagged, etc?
Also, one of the cc's is a Citi Rewards account. I've tried to find this info online, but I can't find it - do I still get the rewards? I know they are awarded when you pay off the purchase vs. when you make the purchase (like the Disney card). For the citi rewards, I know you don't get the rewards if it's paid off by transferring the balance to another cc, so I was wondering about paying it with the loan.
I know these seem like silly questions, but with my luck I'd be missing something important and be penalized for it. I'm nervous about dealing with a large amount of money and I want to make sure I'm not missing anything.
I'll take any info anyone wants to give me.

When we had our HELOC we got the money from it by writing a check. When you pay your credit card bill or anything else with it, they are just going to see it as a check.

 

[Marionnette]

When we had our HELOC we got the money from it by writing a check. When you pay your credit card bill or anything else with it, they are just going to see it as a check.

There's a difference between a HELOC (which is a line of credit) and a home equity loan. With the HELOC, you draw against your line of credit and only pay interest on what you spend. Banks typically supply checks for the HELOC account and you can use them to access the money.

With the home equity loan, the money is dispersed to you in one lump sum and you begin paying interest on the entire amount from day #1. The money typically goes into your bank account and you can write your payments using your own checks or use electronic fund transfers.

OP, you would need to check with the individual CC banks to learn what their terms are. Some will have limits as to the amount that you can pay electronically. You will also need to keep in mind that the since you carried a balance on those CC, your next statement will include interest that was accrued between the closing date of the previous statement and the day that you paid the balance. You won't be finished paying that CC until that interest has been paid too.

The good news would be that as long as your account is in good standing, Citi doesn't care where you got the money to pay them off. You will get your points anyway.

 

[PrincessGrownUp]

There's a difference between a HELOC (which is a line of credit) and a home equity loan. With the HELOC, you draw against your line of credit and only pay interest on what you spend. Banks typically supply checks for the HELOC account and you can use them to access the money.

With the home equity loan, the money is dispersed to you in one lump sum and you begin paying interest on the entire amount from day #1. The money typically goes into your bank account and you can write your payments using your own checks or use electronic fund transfers.

OP, you would need to check with the individual CC banks to learn what their terms are. Some will have limits as to the amount that you can pay electronically. You will also need to keep in mind that the since you carried a balance on those CC, your next statement will include interest that was accrued between the closing date of the previous statement and the day that you paid the balance. You won't be finished paying that CC until that interest has been paid too.

The good news would be that as long as your account is in good standing, Citi doesn't care where you got the money to pay them off. You will get your points anyway.

Yes, we chose the Home Equity LOAN over a HELOC to avoid the variable rate.
Thank you for the info. I didn't think that I would receive another bill with a balance after we 'paid it off', this is exactly why I posted this thread!

 

[GoofyPrincess]

I'm not trying to change your mind if you've already made the decision, but my understanding was that you should never pay off unsecured debt with secured debt. In this case, your debt is just on the card - nothing is guaranteeing it, so the only thing they can do to you is mess with your credit score and annoy you with calls/letters if you fall behind in credit card payments - you don't lose any actual assets. Once you use the home equity loan to pay off that debt, it is now debt that is secured/guaranteed by your home. So if you don't pay it, you can lose your house.

Now I fully admit that I know absolutely nothing about you or your finances, so this could just be a convenience issue or something that you've thought about and decided wasn't a factor, but I wanted to throw that out there as a consideration.

 

[TheRustyScupper]

my understanding was that you should never pay off unsecured debt with secured debt.

1) Youbetcha!
2) A terrible decision to pay off credit cards or car loans with a home-secured debt.
3) If something happens, you could lose the house.
. . . you could lose your job
. . . you could have a catastrophic illness
. . . you could have unexpected home repairs
4) With credit cards, all they can do is sue if you can't pay, but the house isn't touched.
5) Better to have poor credit and a house, than poor credit and no house.

 

[Anthony1971]

As above Please consider what you are doing as your are now putting up equity in your house to pay for things you paid for with a credit card. If at some point before you pay off your mortgage and or your home equity loan you have to declare bankruptcy you will lose 100% of what you paid off. If the loan is in the form of credit card debt you will only need to pay a percentage ranging form 0 on up. While the interest rate and tax benefits are certainly more favorable come up with a plan to repay this loan the fastest way possible and stick to it....

 

[scrapquitler]

I'm not trying to change your mind if you've already made the decision, but my understanding was that you should never pay off unsecured debt with secured debt. In this case, your debt is just on the card - nothing is guaranteeing it, so the only thing they can do to you is mess with your credit score and annoy you with calls/letters if you fall behind in credit card payments - you don't lose any actual assets. Once you use the home equity loan to pay off that debt, it is now debt that is secured/guaranteed by your home. So if you don't pay it, you can lose your house.

Now I fully admit that I know absolutely nothing about you or your finances, so this could just be a convenience issue or something that you've thought about and decided wasn't a factor, but I wanted to throw that out there as a consideration.

True, but if you have a lot of equity in your house, and your HEL or HELOC is at about 3 or 4 %, it makes financial sense to pay down the credit cards that might be at 20% or higher. It depends on the personal personal situation.

 

[yankebabie]

You should never take a loan against your house to pay off credit card debts. Cc debt is unsecured and if anything ever happened and you found yourself out of work not too much they can do to you but now you could lose your house

 

[PrincessGrownUp]

I thought we were doing the right thing (vs. bankruptcy like all of my peers are doing). We have A LOT of cc debt and could barely afford the monthly payments. The papers have been signed, thanks for your input everyone.

 

[Bebella]

We paid off a $2500 balance with our HELOC, and then used about $3000 towards home improvements. It made sense for us to do this, because we were paying a 12% interest rate versus only 3% with the HELOC. If you're comfortable with your financial position, then why not use that money to pay off something with higher interest. I will say this though...don't get comfortable with just paying the minimum toward your equity loan. Still try to pay off that credit card debt with as much as you can afford each month.

 

[crisi]

Never is a strong word. There are always exceptions. You shouldn't use one if what you have is a lot of consumer debt and bad habits - because you probably won't change your habits and dig the hole deeper. If you've never had the bad habits (say the debt is the result of a temporary setback) - or have changed them - a HELOC can save you a heck of a lot of money over credit card interest rates.

 

[laura3773]

To all the people saying unsecured debt is no big deal, if you get sued, they can garnish your bank account for the full amount +lawyers fees, interest. That can screw you up just as badly - if that's your mortgage money, for example.

OP, if this gets you back on track don't second guess yourself. However, I strongly recommend shredding up those cards (and deleting them from Apple pay/Google wallet/amazon) so you don't run them back up.

 

[shan136]

You should never take a loan against your house to pay off credit card debts. Cc debt is unsecured and if anything ever happened and you found yourself out of work not too much they can do to you but now you could lose your house

You should never convert unsecured debt (credit cards) into secured debt (equity/collateral loan) EVER. I wish someone had explained this to me back in the day. The only reason you should refinance your home is to make your investment greater (i.e. home improvements, lower interest rates).

 

[teller80]

Dave Ramsey always corrects people who say they are paying off their credit cards with a home improvement loan - he tells them they are only moving the debt. I think this is importantly psychologically, you need to remind yourself that you did not pay them off, otherwise it's easy to start charging again.

I think it would be a good idea to find out why your cc balances are so high; was it nickle and dime (going out for dinner, buying useless stuff) vs. fixing the car or other necessities.

 

[kydisneyfans]

What normally happens is the CC debt is moved into the HELOC clearing the CC balances, then the CC get run up due to "emergencies" again, leaving folks with the new CC payment, along with the HELOC/Home Equity. If ANYONE considers this(I also wouldn't recommend it), ensure that the credit card accounts are permanently closed to prevent this from happening again.

 

[Marionnette]

I thought we were doing the right thing (vs. bankruptcy like all of my peers are doing). We have A LOT of cc debt and could barely afford the monthly payments. The papers have been signed, thanks for your input everyone.

I think that this is a case of "out of the frying pan, into the fire". You haven't eliminated your debt, you just moved it around. Yes, it will feel great to get those nasty CC balances down to $0, but your next step will be to close those CC accounts and learn to live within your means while paying off that HEL - ironic acronym, isn't it?

Unfortunately, statistics show that many people who borrow to pay off CC balances will just run up those CCs again. Don't be one of those people. Sit down and create a livable budget. Stick to it for 6 months and then sit down again to review & revise it. There's no sense beating yourself up over any of this. Just move forward with determination.

 

[clm10308]

Sometimes consolidating credit card debt can be helpful. We saved over$250 a month by getting an unsecured loan to pay off some credit cards. The "extra" money went to pay the loan back faster.

 

[supersnoop]

To all the people saying unsecured debt is no big deal, if you get sued, they can garnish your bank account for the full amount +lawyers fees, interest. That can screw you up just as badly - if that's your mortgage money, for example.

That's going to be state specific. Laws will vary, but it's not possible to garnish wages or bank accounts for unsecured debt in many states, and the threshold were a bank would actually pursue a judgement is going to be pretty high.