Liz Weston: Retired couple plan to open a new credit card to pay for the oven. Is that the best option?
Dear Lisa: My husband is 68, I’m 70, we are both retirees and have to pay social security contributions. We have little savings. My husband wants to charge $ 10,000 to a low-interest credit card to pay for a new oven and kettle. He plans to pay the minimum every month and at the end of each year to transfer the balance to another credit card at low interest rates. Is this a good idea?
Answer: Maybe you have better options.
Many credit cards offer low introductory rates that expire after 12 to 21 months, but you usually don’t know before applying for your credit limit.
You may be given a limit that is not high enough to make all of your purchases, or you could use up the limit so badly that it damages your creditworthiness. (The rating formulas depend on how much of your available credit you are using, and ideally you would not use more than about 10 to 30% of your credit limit at any point.) When you transfer your credit to. if you apply for a different low-cost card, you are taking similar risks.
A home equity line of credit or a home equity loan might be a better choice. HELOCs have floating rates, but you would have a source of money that you can tap and pay back as needed (much like a credit card, but backed by the equity in your home). Home loans usually have fixed terms and interest rates so you can borrow what you need and pay off the debt over time (often 15 to 20 years).
If paying back the money was going to be a hardship, a reverse mortgage could be an option. However, reverse mortgages can be complicated and expensive. So speak to a Department of Housing and Urban Development approved housing advisor before proceeding with any.
Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWallet. Questions can be directed to them at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or via the “Contact Us” form at asklizweston.com.