Thursday, March 18, 2010

I've never been a fan of Debt Consolidation

Maybe I've listened to Dave Ramsey for too long, but I'm not a big believer in debt consolidation. In most cases, it's done to make things easier on the cash flow without really solving the problem that caused the mess ---- which is spending money I don't have.

However, I'm reconsidering my stance on this for Chase Card #2. It is carrying an 11.99% interest rate which is variable and will go up whenever the Fed decides it's time to raise rates. I've made some progress on this card balance since I started the blog, much in part to that $500 gift card I received for refinancing the HELOC. But it pains my heart to know that I'm paying almost 12% interest when I could be paying my bank 2.75% which is the rate on any new credit advances I have available through the HELOC right now. When I refinanced $73,000 of the HELOC to a fixed rate, that left $27,000 of available credit that is charged prime minus 0.50% if I choose to tap that credit.


  • HELOC is secured by the rental property, not my residence.
  • HELOC interest rate is prime minus 0.50% (variable)
  • Chase #2 interest is prime plus 8.74% (variable)
  • Chase #1 interest is 6.99% fixed.
  • Capital One interest rate is 4.99% fixed.
  • Bank Credit Card interest rate is prime plus 2.90% (variable)
See how that sticks out like a sore thumb!! It's my oldest account on my credit report---probably more than 15 years old. And yet, it has the worst rate and Chase refuses to discuss lowering it.

Mathematically, I know it's the right move. I'm just not sure I'll be as inclined to find those extra payments if the pain (high interest) is gone! Of course, that could free me up to focus on Chase #1 - the card with the highest balance and the next highest rate.

I'm SERIOUSLY considering taking an advance on the HELOC and paying off Chase #2. The due date of my next payment is the 23rd, so I'd love to hear any input you have.

And on a personal note, I own a few shares of JPMorganChase. But I own more shares and have more invested in the stock of the bank that holds the HELOC. From a shareholder perspective, I'd rather have my money go to the bottom line of the HELOC bank. Silly, I know but I can't help bringing in that analysis to my decision.


  1. Well, I have to admit I am a fan of going for the lower rate here. You are moving the debt from an unsecured to a secured loan... which has disadvantages, but it doesn't seem to be that bad. And the interest savings will be significant.

    Personally, I would use the HELOC to wipe out that debt. Then I would remember that I had $3,000 "extra" in that account. And after I had the rest of the debts paid off, I would use those extra payments towards the HELOC until they were at least $3,000. At that point, you can decide how rapidly you want to pay down the rest of the HELOC. I say that just because the $3,000 still represents consumer debt to me.

    Getting out of debt is always a numbers game -- to me. I would even be tempted to move the bank credit card debt to the HELOC too. It's only a 3.4% savings (unlike the 9.24% from the other one). That makes it slightly less worthwhile.

    In any case, as long as you are moving the debt with the intent to not use the cards any more (unless they become like charge cards that you always pay off in full)... you're not using consolidation to add to your debt. So getting the cheaper rate will reduce the cost of the debt and, should, reduce the time you spend paying it off. That is as long as you continue to pay extra to get rid of the amount you added to the HELOC.

  2. I agree with Kevin Keep it in your mind that The Chase card still exists and pay it off accordingly. But skip the interest rates and Chase's crazy fees :)

  3. I would definitely do it. You do not strike me as the type to walk away from debt, so moving from unsecured to secured means little if not nothing. Save a couple bucks along the way.