HELOCs as emergency fund/financial resource

[MacGyverIt]

As Mr and Mrs MM have mentioned, they have a HELOC for emergencies:

I think it depends on your situation.  For us, a HELOC works great since we can pay it back quickly, the interest rate is low, and we don't really have emergency situations arise very often.  We've always had one (even when we had a mortgage) and only used it when needed.  If you know that you'll get in trouble with a HELOC, then this might not be the best choice, but it also means that you may want to tackle your weaknesses as well.  :)

Does anyone else use this as a fall back/resource?

I've read that HELOCs are very difficult to come by since the real estate crash, spoke with a few lending companies and their immediate response was "we don't do HELOCs!". I'm interested in this idea as a means to consolidate remaining credit card debt (yes, yes, I did wrong! but I'm working on it!!) and possibly student loan debt (total amount 8k) and otherwise use this credit line as a non-touchable stand by for emergencies. I'm not great at translating financial-ese so much of the terms of these agreements are a bit confusing...

This is the best run down (for me) I've seen thus far: http://www.mtgprofessor.com/a%20-%20second%20mortgages/what_is_a_heloc.htm

(Then again it may be far easier to simply apply for a 0% balance transfer credit card (https://www.google.com/advisor/uscredit) for such a small amount and focus on paying off that zero percent loan asap.)

Thoughts?

[JohnGalt]

My concern with consolidating credit card and student loan debt into a HELOC would be transferring unsecured debt to debt secured by your home where, if something were to happen to force you to default, you're house would be up for grabs.

If you can do the 0% balance transfers - that's a lower interest rate and does not put your house at risk so I'd go that route and just pay it off as quickly as possible.  But then, if you can pay it off quickly anyways - the interest rate is probably not that big of a deal in the first place...

[MEJG]

Payday loans are terribly Unmustacian! 0% balance transfers are a much better option if you have the discipline and income to pay quickly.  BUT since the OP has cc debt I don't think I'd recommend it in this case :-)

Pay everything off as quick as possible starting with the highest interest rate- HELOC isn't a terrible idea if you have the equity and the discipline :-)

[Mactrader]

I've considered opening a HELOC for an extended emergency fund (have the Ramsey baby 1k while I pay down debt) but not very familiar with them. I purchased my home last year with about 3.5% down. What is the typical equity level where you are allowed to start tapping into it? I imagine it is going to be some time, but wanted to level myself on the options I have.

[MEJG]

I'm no expert :-)  we don't own a home yet!  But I believe you have to have at least 20% equity in your home to set one up.  I'm sure those more in the know will jump in to tell you the details.

[elysianfields]

The equity level you need depends on your lender, but in most cases you need to keep a 20% equity cushion at least (80% total indebtedness).

We went with Wells Fargo back when it was Wachovia.  They offered us a Prime Rate HELOC, and then years later lowered the rate to Prime Rate minus 0.5% when I showed them a competing offer from another big bank.  But we had lots of extra equity at the time.

Contact your bank or credit union and ask.