Low Apr Balance Transfer Cards Until Paid Off

Should You Borrow for Your IRA?

Ray’s Take: When that first W-2 arrives you know it is tax season, which for some people will last longer than the 2011 baseball season.

For tax professionals and financial planners it’s a busy time, and it’s open season on tax questions.

For example, a young woman who had no 401(k) through work asked me if she should borrow money to put into her IRA. She had $5,000 in stocks, but she didn’t want to sell them and pay taxes on the gains.

I asked how she was going to borrow it, and she said through her home equity line of credit (HELOC) at 3 percent. I asked her what her tax bracket was, and she replied 30 percent.

It was pretty straightforward. If she borrowed $5,000 from her HELOC and paid it into an IRA, she would gain $1,500 in her refund. If she put that toward her HELOC balance and paid $300 a month for 12 months, it would all be paid off. Her interest paid would be a little more than $100 (tax deductible) and she would have a $5,000 retirement asset.

Now, I’m not a big fan of debt. But, in this case, it made financial sense. There’s one critical factor to consider, the human factor.

Was she disciplined enough to pay the $1,500 of her refund to her HELOC and make the 12 monthly payments of $300?

What if she didn’t pay it off and $5,000 continued to ride month after month on her HELOC. And, what if the rate on the credit line rose as the economy improved. In 12 months she could be paying a higher rate and in 24 months an even higher one.

It’s easy to theorize about borrowing money with the intention of saving in the long run. What’s hard is seeing the plan through, especially if it requires sacrificing things you enjoy.

Dana’s Take: The woman Ray described was fortunate to have a low-interest credit line tied to her home’s equity.

Lately, I’ve had friends burned by low-interest credit card offers. One saw an offer for 3.5 percent APR until 2013. She enrolled, was approved and hastily transferred all her credit card balances to that card.

In her first statement she was shocked to see a one-time 3 percent transfer fee had been applied to the entire amount. So really she was paying 6.5 percent.

She later discovered that the new card and the high balance lowered her credit score.

Thanks to new credit card regulations, the fine print on credit cards isn’t as hard to read as it used to be. But, you do have to read it.

Best Debt Relief Reviews » Blog Archive » What is the quickest way ...

I currently have around US $4,500 in credit card debt, spread over three separate cards. I have US $1,300 in savings and I earn anywhere between US $2,000 and $3,000 each month.

I have zero expenses.

My question is, how do I pay off my credit card debt as quickly as possible whilst also building on my savings?

Any advice would be GREATLY appreciated!!

You DON’T pay off your debt quickly WHILE building your savings. You put EVERYTHING toward paying off the cards, THEN you build your savings.

With or without the debt, the BEST thing to do is make a WRITTEN budget at the beginning of EVERY month to control your spending. If you don’t PLAN how you will spend your money, you will spend some of it on things you don’t really want and can’t remember buying.

~Credit Card Debt Consolidation If you owe more debt than you can reasonably pay during the balance transfer offer period, you should consider a debt consolidation loan. These come in two forms: personal and home equity. If you don’t own a home or your home doesn’t have equity, then you should apply for a personal debt consolidation loan. Interest rates are higher than home loans, but lower than credit card rates.

~Credit Counseling If you need help paying off your credit card debts, contact a local credit counseling service. The service will review your debts, income, and expenses, and work with you to create a payment plan. They may suggest a debt management plan. The service negotiates with your creditors to reduce your interest rates and set a fixed monthly payment. Once your debts are enrolled in the program, you no longer have access to the cards, which prevents you from creating new debt. In addition, you make a single monthly payment to the service, which then distributes it to your creditors as agreed.

~Credit Card Debt Settlement If you owe significantly more than you can pay, and can’t reduce expenses or increase your income any further, a credit counseling service may recommend debt settlement. Also called debt negotiation, debt settlement actually reduces your total balance due. The service contacts your creditors to negotiate a new lower balance and a new payment plan. You may either be required to make a lump sum payment or monthly payments. In most cases, debts can be reduced by 40%. Before choosing this option, remember that debt settlement may damage your credit and you may owe taxes on the unpaid amount.