Loans

Why home equity loans are a better option than credit cards

Why home equity loans are a better option than credit cards
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Dear Liz: My husband is 68, and he is 70, both retired and under Social Security. We have little savings. My husband wants to pay $10,000 to a low-interest credit card to pay for a new stove and water heater. He plans to pay the minimum each month and at the end of each year he transfers the balance to a different credit card with low interest. Is this a good idea?

Answer: You may have better options.

Many credit cards offer low introductory rates that expire after 12 to 21 months, but you won’t usually know before your credit limit is applied.

You may not get a high enough limit to make all of your purchases or you may use too much of the limit causing damage to your credit score. (Score formulas are sensitive to the amount of available credit you’re using, and ideally you won’t use more than 10% to 30% of your credit limits at any given time.) When you apply to transfer your balance to another lower priced card, you’ll face similar risks.

A line of credit for a home purchase or a home equity purchase loan may be a better option. HELOCs have variable rates, but you will have a source of funds that you can click on and pay off as needed (much like a credit card, but backed by your home balance). Home buying loans usually have fixed terms and rates, so you can borrow what you need and pay off the debt over time (often 15-20 years).

If paying off the money is a difficulty, a reverse mortgage may be an option. Reverse mortgages can be complicated and expensive, so talk to a housing advisor approved by the Department of Housing and Urban Development before embarking on one.

Storage of Will and Trust Documents

Dear Liz: You recently advised someone to leave their original will or trust with their attorney. As a practicing attorney, I can’t tell you how many times the original wills and wills have been lost as the attorney preparing the documents has either retired or died before the client. There are requirements to inform clients of retirement, but unfortunately very few attorneys follow these rules. The best thing is to buy a home safe or put your documents in double zip freezer bags in your freezer (which should be fireproof and make a great document keeper). Or appoint a younger attorney who will still be around when you want to amend your will, trust, or death.

Answer: Thank you for sharing your point of view, but freezers are not fireproof. Fireproof home safe will be a better choice for those who want to keep their will at home.

Unfortunately, there is no one perfect option for storing probate. You are absolutely right that people often do not keep in touch with the lawyers who create their documents, even though estate plans should be reviewed and updated regularly. The risks of losing a will may not be high if the attorney is part of a large corporation, but even those can go out of business.

Some states allow you to file your will in advance with a probate court or probate registrar, so this is another method to consider.

Safeguard disadvantages

Dear Liz: I recently advised against keeping one’s will in a bank’s safe deposit box. This was on the grounds that upon death, the bank could close the fund. My daughter is on my chest (also called port) – that is, the bank has gone through her through many hoops, the result is that she can access the chest as she pleases. Is your advice correct in this case?

Answer: Learn about the bank’s policy. If the bank confirms that your daughter will have access in the event of your death, ask that the confirmation be provided in writing.

One of the problems with keeping anything in a safe deposit box is that the contents can be moved – and handed over to the state – if the bank decides to abandon the box. This usually won’t happen if you bill the box on time and make sure the bank has up-to-date contact information, but actually checking the contents of the box once a year or so is good practice.

Liz Weston, Certified Financial Planner, is a personal finance columnist at NerdWallet. Questions can be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or using the “contact” form at asklizweston.com.

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