How Should I Best Use My Aven HELOC Money?

Question:

Dear Steve,

I am a single registered nurse age 51 who bought my first house in 2018 in California.

I make just enough money to pay for everything, with an extra part-time job that I do on the side as needed when I need extra cash.

I was recently turned down for a HELOC at a local bank due to my high debt to income ratio. So I ended up taking a $20k loan at Bankers Health Group with a 29% interest rate to be paid in 5 years so I could make some improvements on my yards (my grass died, and my dogs were bringing the dirt inside my house, something just had to be done.)

This loan does not show up on my credit report. It was the only loan I could get. I almost didn’t take it because of the interest rate.

My yards were redone, and I am delighted with the results. I am also planning an elective procedure out of the country where it’s cheaper to do. This will cost me another $10,000 out of pocket. This is non-negotiable, and I am doing it regardless. It is necessary.

I took an offer in my mail to get a HELOC-backed credit card called AVEN, which you can do cashouts, and balance transfers with a fixed percentage (8.24%), or you can use as a credit card with a variable interest rate that could go as high as 18%.

I have 25k total in credit card debt. I also have 5k left on my car payments and student loans which will be forgiven in 8 more years.

My house is a 3-bedroom flip house here in California, and my mortgage is $2,193 per month, and the property tax is $550 per month. My property value has gone way up. I owe 505k, and it’s worth over 700k at this point.

Here is my question. HOW MUCH OF THE 50K THAT I HAVE BEEN GIVEN ON THE HELOC CREDIT CARD SHOULD I USE AS CASH OUT/BALANCE TRANSFER AND HOW MUCH SHOULD I HAVE LEFTOVER TO USE AS AN 8.24% (although that could go up) CREDIT CARD FOR MY UPCOMING ELECTIVE PROCEDURE and for future use as a (revolving) credit card?

Most of my credit cards have a 28-29% interest rate. So even 18% is better than that. I would like to have a less than 28% revolving credit card.

Should I pay off my BHG loan? Or, since I will be done in 5 years with that, should I only pay off part of it?

Unfortunately, I cannot work any more hours than I already do. I’m maxed out. I’m trying to make good decisions with my money, instead. “Work smarter, not harder.” Any advice? Thanks.

Emma

Answer:

Dear Emma,

Well, that is a lot of balls in the air to juggle.

The first issue of having an extended debt to income ratio with overextended lines of credit is a straightforward issue to deal with. Your debt-to-income ratio should be ten percent or less for the best interest rates. See this recent answer.

It’s not clear if your Bankers Healthcare Group loan is an interest-only balloon loan. Hopefully not. Those tend not to end well.

You know, it might be worth considering having a chat with my debt coach friend Damon Day about dealing with the credit card debt. Since you are already overextended, you should learn more about your options. The Aven solution might be the right move after you understand and consider all your options. But you won’t know without talking to an expert.

I’m not a fan of HELOCs to cover expenses since it puts the home at risk. The best type of loan is an unsecured loan. They carry higher interest rates, but the added cost is worth it to avoid getting buried in home back loans.

One action plan would be to use the loan money to pay off the credit card you’ve had the longest. This will help to bring back and restore your credit. Then consider settling the other two cards. This will reduce your need for borrowed funds. Just because you have been approved for a considerable amount doesn’t mean you have to use it all.

I can’t suggest anything with the BHG loan. I need to know more about the terms of that loan. Maybe you can post an update for me in the comments below.

From what I read, your priorities are dealing with medical expenses, repairs, credit cards, and bringing your credit score back up. Did I read that right?

I’m also concerned about your current strategy to save for retirement and boost your emergency fund. Your situation requires an in-depth review, and Damon is your best option to accomplish that.

Sincerely,

You are not alone. I’m here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don’t give up.

Damon Day - Pro Debt Coach