You can save money by reducing payments and lowering interest rates when you take advantage of low introductory credit card rates and transfer balances from other debts such as your home equity line of credit. After all, why offer your home as collateral for your debts if another creditor will offer you a low rate without encumbering your home? However, be sure to read the fine print before you rearrange your debt to make sure your interest savings will last more than just a few months.
Contact your existing credit card lenders and find out if you have enough available credit to transfer the balance from your home equity line. If your current balances are too high, you can also ask your lenders to increase your credit line. You can also apply for a new card from a lender offering discounted rates on balance transfers and a large enough line amount to absorb the balance on your equity line.
Contact your home equity lender and ask for a 10-day payoff quote with a per diem. Lenders use the term per diem when referring to the daily accrual of interest. The payoff quote shows you how much you owe today, plus how much you must add to that payoff if you settle the debt any time within the next 10 days. It can take a few days for a credit card company to process your request, so you can use the 10-day quotes to estimate the balance on the day the payoff actually occurs.
Write a check to your home equity lender for the balance owed on the equity line. Some credit card lenders no longer use balance transfer checks, in which case you must set up an electronic transfer. You must provide your credit card lender with the name of your equity lender, the equity line account number and the balance owed as shown on the 10-day payoff letter.
Review your credit card statement to ensure the payoff was processed. Some card companies reserve the right to refuse such transfers, even if you have available credit on your card so you should seek confirmation that the request was approved. Additionally, errors on payoff quotes can occur so you may find you paid a few dollars too much or too little. Assuming the balance occurred as planned, instruct your home equity lender to close the equity line.
- Home equity lines often have terms of 10 or 15 years, which means that you can pay off your equity line but draw on it again in the future. You can ask your lender to close the line and remove the lien from your home if you want to clear your mortgage debt. However, if your equity line contract does not include an annual fee, then you should consider keeping the line in place for emergencies. If a hurricane, tornado or other disaster damages your home, you can access the line instantly without having to wait for insurance inspectors to cut you a check.
- Read the fine print on your balance transfer very carefully because many banks offer low rates that expire after a certain period. You do not want to pay off a low rate equity line debt if the low rate on your balance transfer expires long before you actually pay off the debt. Additionally, equity line rates are normally attached to prime rate and only change when the prime rate rises or falls. Credit card firms can change your rate when prime rate increases, but also in a number of other situations, such as when you fall behind on payments.
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