Credit cards have evolved much over the years, offering security, easy cash flow and lucrative rewards to cardholders. What they haven’t historically been so good at is addressing personal finance needs as they relate to your rent or mortgage.
Recently, though, homeowners have a specific credit card to get excited about. The Aven Home card is designed to be a cross between a rewards card and a home equity line of credit (HELOC). Given the unique “hybrid nature” of this offer, I think it has the potential to change the way we think about credit cards, particularly among home owners.
Don’t feel left out, Renters! There’s a card aimed at helping you out in an all-new way as well: The CardNamediscontinued allows you to earn rewards on your rent payments without incurring any transaction or prooessing fees.
How does the Aven Home card work?
When it comes to day-to-day use, the Aven card works like a regular Visa card, so you can enjoy the convenience of a credit card with the lower interest rates associated with a HELOC. It’s the underwriting and fee structure of the Aven card that sets it apart &dnash; basically, the card utilizes your home’s equity as a form of collateral to secure your credit line and lower rates.
When you apply for the card, the issuer will verify your income and credit score/history as well as the equity in your home. Assuming you’re approved, you’ll receive the card in the mail soon after.
Although there’s only a soft credit check (aka pull) when you apply, there is a hard credit inquiry once you schedule a notary to finalize the deal.
Your monthly minimum payments will be 1% of your principal balance, plus interest and any fees. It’s a setup that’s fairly typical for a credit card.
Where Aven differs is that you have the option to set up fixed monthly payments for balance transfers and cash outs. In that case, you won’t pay interest on those transactions, but you will pay a set monthly fee. A number of mainstream banks, including Chase and Citibank, offer similar payment setups for certain purchases on their qualifying cards.
If you’re considering the Aven card as a balance transfer option, it’s best to not think about it as a purchase card option until that balance is paid off.
“If you’re in credit card debt, stop using your cards [for new purchases],” advises Beverly Harzog, consumer finance analyst and author of “The Debt Escape Plan: How to Free Yourself from Credit Card Balances, Boost Your Credit Score, and Live Debt-Free.” “Focus on becoming debt-free. This can be challenging, but as you pay down debt, your credit score will start to increase. You’ll feel a rush of adrenaline that will help you stick with it!”
Highlights of the Aven card
- 7.99%-14.99% variable APR on purchases, balance transfers and cash advances. Your initial rate is based on your credit score
- Up to a $250,000 credit limit, which is MUCH higher than the typical card limit of around $3,952
- Offers balance transfers and cash outs (directly deposit cash from your card to your bank account, which is similar to a credit card cash advance) and you have the option of fixed rate monthly payments. Unlike other cards, you can also lock in your payments for five or 10 years. (one-time 4.9 % transfer fee applies ofr both transfers and cash outs).
- You can use funds from a cash out for any purpose and, unlike almost all other credit cards that charge a higher rate for cash advances, the cash out rate is the same as the fixed purchase rate
- 1.5% unlimited cash back on all purchases
- Potentially lower fees than a traditional HELOC and a more streamlined, faster application and approval process
Details of the Aven Home card
Aven cardholders earn 1.5% cash back on every purchases, which is on par with other flat-rate cash-back cards and higher than the base rate of many tiered rate cash-back cards.
Rewards, however, aren’t terribly flexible. You can redeem your cash back for statement credit, which could save you a bit of money but won’t allow you to strategically maximize the rewards as you can with some points/cash-back cards.
Annual fee: The Aven card offers a $0 annual fee option for all applicants; however, if you want lower rates, you can opt to pay an annual fee equal to 1.2% of your credit limit. That doesn’t seem too bad until you do the math. If you secure a $25,000 line of credit, your annual fee will be $300. You’ll need to do even more math to determine whether that annual fee is worth the lower APR.
Balance transfer fee: There’s a 4.9% fee for balance transfers, which is higher than the typical fee. If you REALLY need a lenghty period of time (say, more than 18 months) to pay off a chunk of debt, it might be worth it. That said, there are plenty of balance transfer credit cards out there that offer a 0% APR period (15-18 months isn’t hard to find for people with excellent credit) and a fee of 3%. Taken together, that could prove a much better option for most people.
Cash advance fee: Again, there’s a 4.9% cash advance fee BUT cash advances enjoy the same interest rate as purchases, which is highly unusual. With most cards, you’ll pay a higher interest rate for cash advances than for purchases and balance transfers.
Loan orginiation fees: There’s aren’t any! This is where the card shines for people considering a HELOC. In many cases, a HELOC has some origination and processing fees to get your started; but you pay any of that with the Aven card.
APR: The card advertises that you get “really, really low rates”. While I don’t totally agree with the phrase “really, really low rates,” this card does offer a purchase rate as low as 7.99% (not an introductory or teaser rate). In comparison, the national average is around 20% according to NBC.
“Compared to other credit cards, most of which now have high double digit rates, this is a good deal,” notes Lynnette Khalfani-Cox, author of the New York Times bestseller “Zero Debt: The Ultimate Guide to Financial Freedom” and affectionately known as the Money Coach.
If you take out a traditional HELOC and use it exclusively for home improvements, the interest on that loan is tax deductible. Talk with a tax adviser about the deductibility of projects completed using your Aven card.
Are there any potential ‘gotchas’ with the Aven card?
The Aven card is definitely more complicated than the average card, but really only as it relates to how you qualify and what kind of payment structure you’re anticipating. While this alone isn’t a big cause for concern, there are other potential issues worth discussing.
1) There’s no question that Aven card has attractive rates and a unique value proposition, but the real question is who exactly this offer is best suited for. Obviously, getting a HELOC is not a light decision, particularly since you could lose your house if you get too far behind in payments (since the HELOC is secured by your home)!
“Aven has excellent rates because they use your home as collateral, which can be risky,” explains Harzog. “So, think carefully about using the Aven card over, say, an unsecured card with rewards.”
Khalfani-Cox points out this card could be a smart choice for applicants who “are financially disciplined and pay their card balances in a timely manner.”
“Consumers who are savvy enough to use the card for big ticket purchases can also snag the 1.5% cash back deal,” she continues.
2) Related to point #1, the BIG red flag on this offer is the very real prospect of overspending due to potentially having a large credit line of up to $250,000 (depending on your credit score and how much equity you have in your house).
While you might have this same issue if you got a traditional HELOC (one not attached to a card), using this card with a much larger than normal credit line may be extra tempting and cause some consumers to blow their monthly budget.
If you think you lack the self restraint required to manage this line of credit — and [would be] tempted to utilize your home equity excessively or for unwise purchases — do yourself a favor and avoid the possibility of maxing out this card, and potentially putting both your credit rating and your home at risk.
3) While it’s nice to be able to pay off other cards and debts with a fixed monthly payment using the cash-out feature, this feature may not be the best option when considering that the best 0% balance transfer offers can last up to 21 months (assuming you can pay off the 0% transfer within the introductory time frame).
The key takeaway here is why pay a low interest rate, when you can potentially pay no interest!
“This is an interesting offer and it has some benefits if you have good credit and qualify for a low interest rate,” Harzog explains. “If you have debt on high-interest credit cards, you can do a balance transfer so you can pay your balance off at a lower rate.”
But if you have card debt and still have a very good credit score, it’s better to [do a normal] balance transfer and get a 0% rate for a period of time.
Does Aven offer a competitive rewards program?
The short answer is that Aven does offer competitive rebates, but it’s not the “best of breed” when compared to other cash-back offers. If you really like the 1.5% unlimited cash back benefit on all purchases, you should be aware that there are “normal” rebate cards that offer 2% cash back on purchases (or more) with no annual fees.
If you are trying to pay down debt, that extra .5% (or more) on some purchases could help you out.
“Paying down debt could make my earnings go further rather than just using my cash back to buy stuff off Amazon like I’ve done in the past,” notes Scott Bonge, the founder of MyPerfectGoatee.com, and a long-term rewards credit card user.
“It’s really a matter of personal preference, money-management style and existing credit resources,” Khalfani-Cox adds. “Someone who doesn’t need a HELOC, perhaps because they already have one or don’t want to draw down on that line, may be better off with a traditional 2% cash back card.
“But for someone who prefers lower rates (ongoing, not intro.) and/or having the flexibility that a HELOC-type card provides, the Aven card may be more beneficial.”
The bottom line is that while Aven has a decent rewards program, you shouldn’t apply for this offer solely based on it’s rewards program. The rebates should be viewed simply as an added bonus (pun intended).
As is the case with other reward cards, you can not earn rebates on balance transfers and cash outs. The redemption options for Aven are limited as cash-back rebates are only redeemable as a statement credit (you can’t get gift cards, a check in the mail, etc).
The Aven Home card has introduced a creative way for homeowners to conveniently take advantage of their equity. I love their hybrid approach and I do believe this offer can definitely be a blessing to a certain demographic, particularly when considering the economic environment we find ourselves in.
I also love the balance transfer and cash out feature, but would caution current and potential cardholders to remember a few “old school” debt reduction principles when using this new card to consolidate and/or pay down debt.
“In general, I recommend people prioritize paying off their debts organically — meaning they use cash to pay it off, not another form of borrowing,” Khalfani-Cox elaborates. “There’s a difference between a ‘zero debt'”‘ strategy — which seeks to eliminate debt progressively — and a ‘shift debt’ strategy, which really just pushes the debt around from one form of credit or borrowing to another.
“Because I once had a ton of credit card debt before paying it off, I do understand the ‘shift debt’ strategy,” Khalfani-Cox conitinues. “It’s the same strategy, in effect, that people have used (myself included) when they do balance transfers. You get a little breathing room, maybe a 0% interest rate, and the opportunity to more aggressively attack your debts. So although a ‘shift debt’ strategy can be helpful in the short-run, it’s not a viable long-term strategy to actually get rid of the debt. Ultimately, you do have to pay the piper and pay off what you owe.”
Ultimately, as Khalfani-Cox reminded me in a recent interview, it pays to have a set of rules for when you will use credit. Ask yourself: under what circumstances and for what types of purchases will I use this card or this form of credit — and then stick to that. By setting up some pre-established guidelines and criteria for credit usage, you’ll become a lot better at managing credit wisely and avoiding the pitfall of excessive credit use.
I sincerely hope these insider tips are helpful to you and would love your feedback on your personal experiences with the Aven card, balance transfers and card debt. Who knows, I may include feedback from you in a future article. Best wishes in using cards to your financial advantage!