Credit card transfer or HELOC to pay debt?

Ask NJMoneyHelp

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Q. I have $20,000 in credit card debt on three cards. They’re all with the same bank, and while I’m offered zero percent transfer deals on those cards, I can’t use it to transfer funds from cards at the same bank. Should I just get another card from a new company, or should I use my HELOC? My interest rates are all now about 15 percent.
— Digging out

A. We’re glad you want to get control of your credit card debt.

Two of the most important considerations when managing credit card debt is interest rate and time frame, said Frani Feit, a certified financial planner with Tradition Capital Management in Summit.

She said if you’re paying 15 percent on credit card debt and can access a zero percent interest rate card, that would mean a tremendous savings each month.

Feit said you need to consider for how many months the zero percent offer will be good until the rate climbs back to current levels.

“Typically zero percent offers last for 12 to 15 months,” Feit said. “Is that enough time to pay down the $20,000 of debt while continuing to live and presumably add to the existing debt?”

Feit said HELOCs currently offer a low interest rate alternative for borrowing, but these rates are not fixed. They are tied usually to the prime rate, which is tied to the federal funds rate.

“So when the Federal Reserve raises interest rates, your HELOC will rise — immediately,” Feit said. “Some banks will fix the interest rate on the amount already borrowed and let the floating rate apply to new debt on the HELOC.”

Check with your borrower to see if they provide this option.

The bottom line?

Feit said if you can access a zero percent credit card from another lender and divide the outstanding debt by the number of months offered — say $20,000 divided by 15 months, which is a $1,333 monthly payment — that is a good first choice.

“If those payments don’t fit in your cash flow, pay down as much as you can on the zero percent card and at the end, you can always use the HELOC to pay off the balance as that rate is still far lower than the 15 percent credit card rate,” she said.

The other important issue? Make sure you don’t incur additional debt while trying to manage current debt.

“It’s like a dog chasing its tail and will not provide the desired outcome of living with less debt,” Feit said.

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NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.