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Dear Liz: We have credit card debt and a home equity line of credit. Which should we pay down when we get extra money? The credit card total is $15,000 and the home equity line balance is $44,000.
Answer: Typically, you'll want to pay credit card debt first.
Credit card interest rates are usually much higher than those charged on home equity lines of credit. Current average rates for credit cards exceed 11%, whereas the average rate on a HELOC is around 5%. Also, the interest on a HELOC may be tax-deductible, but the interest on a personal credit card isn't.
Furthermore, your issuer can change your credit card rate on a whim, and lately many have. Some card customers have seen their rates double or even triple, not because they were late or otherwise violated their account agreements but simply because the issuers needed to boost revenue.
Rates on home equity lines of credit can also change. But they're usually tied to a benchmark rate such as the prime rate, which moves up or down in relatively small increments. HELOC rates are typically capped at 18%, whereas credit card rates can exceed 30%.
Finally, balances on the typical credit card hurt your credit score far more than balances carried on most home equity lines of credit. Credit scoring formulas are more sensitive to big balances on cards, so paying those down can significantly improve your scores -- at a time when credit scores are more important than ever before. For more, read on.
High scores still give you clout
Dear Liz: You recently wrote that people with high credit scores still have access to cheap credit, even as credit card issuers are raising interest rates and tightening lending standards for everyone else.
You are doing a disservice by telling people this. There are numerous articles about banks raising interest rates even on their best customers. I have 29 years with my credit union and near-perfect credit, and they raised my line of credit from 14.5% to 17.5%, just because they could. Things have changed, and you need to reflect that in your responses.
Answer: The lending environment has changed radically in recent months. The subprime market, which once catered to people with bad credit, has all but disappeared, and lenders indeed are raising rates on broad swaths of their customers, even those who pay on time.
But that doesn't alter the fact that people with the highest credit scores can still get cheap credit.
If you have FICO scores of 760 or above, your projected default rate is very low and lenders typically will compete for your business. Even 720 or above will get you good rates. Check out credit card offers at CreditCards.com, Bankrate .com or CardRatings.com and you'll find many low-rate and 0% balance transfer options for people with good credit.
Meanwhile, the average rate on a personal line of credit is less than 13%. If your credit is good, you should be able to get that rate or less if you check around at other banks and credit unions.
People who know they have good scores may be able to talk a bank into rescinding a rate increase by threatening to take their business elsewhere. If that fails, they can always follow through on their threat, because they have plenty of low-rate options.
It's possible, of course, that your "near-perfect" credit isn't quite as good as you think. It may be worth buying at least one of your FICO scores at www.myfico.com (the cost is about $16) to see if you're as desirable a credit risk as you think you are. If you've been carrying big balances on that line of credit, you may not be.
Tracking down safe-deposit box
Dear Liz: My nephew, who is executor of his deceased uncle's estate, found a safe deposit box key while cleaning out the uncle's home. The problem is, he cannot identify or find the bank it belongs to. Is there any way to connect a key to the right bank and box?
Answer: Your nephew should first check through the uncle's papers to locate any bank statements. Safe deposit boxes typically require an annual fee, so spotting the charge could lead him to the right bank.
If that doesn't work, your nephew should contact the escheat office in the state or states where the uncle lived. Unclaimed property is typically turned over to this office after a few years.
He can find the appropriate links at MissingMoney.com.
Freelance writer Liz Pulliam Weston is the author of the book "Easy Money: How to Simplify Your Finances and Get What You Want Out of Life." Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon Blvd., No. 238, Studio City, CA 91604, or via the "Contact Liz" form at www.asklizweston. Distributed by No More Red Inc.
Dear Liz: We have credit card debt and a home equity line of credit. Which should we pay down when we get extra money? The credit card total is $15,000 and the home equity line balance is $44,000.
Answer: Typically, you'll want to pay credit card debt first.
Credit card interest rates are usually much higher than those charged on home equity lines of credit. Current average rates for credit cards exceed 11%, whereas the average rate on a HELOC is around 5%. Also, the interest on a HELOC may be tax-deductible, but the interest on a personal credit card isn't.
Furthermore, your issuer can change your credit card rate on a whim, and lately many have. Some card customers have seen their rates double or even triple, not because they were late or otherwise violated their account agreements but simply because the issuers needed to boost revenue.
Rates on home equity lines of credit can also change. But they're usually tied to a benchmark rate such as the prime rate, which moves up or down in relatively small increments. HELOC rates are typically capped at 18%, whereas credit card rates can exceed 30%.
Finally, balances on the typical credit card hurt your credit score far more than balances carried on most home equity lines of credit. Credit scoring formulas are more sensitive to big balances on cards, so paying those down can significantly improve your scores -- at a time when credit scores are more important than ever before. For more, read on.
High scores still give you clout
Dear Liz: You recently wrote that people with high credit scores still have access to cheap credit, even as credit card issuers are raising interest rates and tightening lending standards for everyone else.
You are doing a disservice by telling people this. There are numerous articles about banks raising interest rates even on their best customers. I have 29 years with my credit union and near-perfect credit, and they raised my line of credit from 14.5% to 17.5%, just because they could. Things have changed, and you need to reflect that in your responses.
Answer: The lending environment has changed radically in recent months. The subprime market, which once catered to people with bad credit, has all but disappeared, and lenders indeed are raising rates on broad swaths of their customers, even those who pay on time.
But that doesn't alter the fact that people with the highest credit scores can still get cheap credit.
If you have FICO scores of 760 or above, your projected default rate is very low and lenders typically will compete for your business. Even 720 or above will get you good rates. Check out credit card offers at CreditCards.com, Bankrate .com or CardRatings.com and you'll find many low-rate and 0% balance transfer options for people with good credit.
Meanwhile, the average rate on a personal line of credit is less than 13%. If your credit is good, you should be able to get that rate or less if you check around at other banks and credit unions.
People who know they have good scores may be able to talk a bank into rescinding a rate increase by threatening to take their business elsewhere. If that fails, they can always follow through on their threat, because they have plenty of low-rate options.
It's possible, of course, that your "near-perfect" credit isn't quite as good as you think. It may be worth buying at least one of your FICO scores at www.myfico.com (the cost is about $16) to see if you're as desirable a credit risk as you think you are. If you've been carrying big balances on that line of credit, you may not be.
Tracking down safe-deposit box
Dear Liz: My nephew, who is executor of his deceased uncle's estate, found a safe deposit box key while cleaning out the uncle's home. The problem is, he cannot identify or find the bank it belongs to. Is there any way to connect a key to the right bank and box?
Answer: Your nephew should first check through the uncle's papers to locate any bank statements. Safe deposit boxes typically require an annual fee, so spotting the charge could lead him to the right bank.
If that doesn't work, your nephew should contact the escheat office in the state or states where the uncle lived. Unclaimed property is typically turned over to this office after a few years.
He can find the appropriate links at MissingMoney.com.
Freelance writer Liz Pulliam Weston is the author of the book "Easy Money: How to Simplify Your Finances and Get What You Want Out of Life." Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon Blvd., No. 238, Studio City, CA 91604, or via the "Contact Liz" form at www.asklizweston. Distributed by No More Red Inc.
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