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Restructuring and consolidating debt

Manage your balance sheet to support your goals

To reach your financial and other life goals, it’s important that you periodically review both sides of your balance sheet — the things you own (assets) and the money you owe (liabilities). Student loans, car loans, unsecured bank loans, mortgage payments and credit card balances are common liabilities.

As you review your balance sheet, consider how much debt you have overall, how much each debt is costing you in interest and how long it will take you to pay it off. If you decide that retiring or restructuring debt would make sense now, you may have a number of options with different pros and cons. For example, if you tap into your cash savings or sell investments, would that affect your overall financial strategy? What other options are available?

Your financial advisor can help you review your overall financial situation and discuss additional options from Bank of America to potentially lower your borrowing costs and strengthen your balance sheet.

If you’re thinking about restructuring your debt, here are some options to consider:

Bank of America® Premium Rewards® credit card 1
  • This option may only be suitable for consolidating balances from other credit cards or other short-term loans with higher interest rates.
  • Credit cards have the highest interest rates among the options described here.
  • If a credit card balance is not paid in full each month, interest charges can compound quickly, which may be counter to a goal of reducing debt.
   
Loan Management Account® (LMA® account) 2
  • Depending on your financial picture, this option allows you to borrow against the combined value of your eligible assets held at Merrill to pay down one or more existing debts.
  • You can choose from multiple variable- and fixed-rate loan options, 3 which you can manage through a single account.
  • You maintain access to your investments even while you’re using them as collateral, subject to certain restrictions.
  • Note that securities-based financing involves special risks and is not for everyone (see below).
   
Home Equity Line of Credit (HELOC)
  • If you have considerable equity in a home you own, this option allows you to borrow against the equity to pay down one or more existing debts without taking out a traditional mortgage.
  • Our HELOC has a variable rate that comes with a Fixed-Rate Loan Option 4 
  • You can draw as much or as little as you need, up to your available credit limit.
  • You can lower your interest rate if, prior to closing, you set up automatic payments from your Bank of America bank account 5 and by enrolling in Preferred Rewards for Wealth Management. 6
  • You should take note of the loan terms and risks associated with HELOCs.
   
“Cash-out” Mortgage Refinance
  • If you have available equity in a home you own, this option allows you to refinance your home for a higher amount than you currently owe and receive the difference as cash to pay down one or more other debts or use as you wish.
  • Mortgage closing costs will apply and should be included in comparing the cost of this debt consolidation option with other options.

 

Examples of situations to consider when thinking about restructuring debt

Current situation Considerations
You're in the last 10 years of a 30-year, fixed rate mortgage. Your current mortgage payments mainly go toward retiring principal debt. If you refinance now, your new mortgage payments will mainly go toward paying interest.
Your existing loan has early repayment penalties. Make sure that the new lower rate you would pay by restructuring debt will offset early repayment penalties.
You would move from a loan with tax-deductible interest to a loan with non-tax-deductible interest. Talk to your tax advisor and compare the impact on your tax bill with the benefits of restructuring the debt before you decide.

 

Learn more
Your Merrill Lynch Wealth Management Advisor can help you consider your available options, consider the best loan structure for your needs and open an account if appropriate. Consult your legal or tax advisor for additional guidance on tax implications of debt restructuring options. 7

Risks

LMA Borrowing
Securities-based financing involves special risks. Clients should review their LMA Loan Agreement and related documents and disclosures carefully and consult with their own independent tax and legal advisors.

  1. A decline in the value of collateral assets may require the client to provide additional funds or securities to avoid a collateral maintenance call. Clients can lose more funds than are held in the collateral account. The LMA account is a full recourse loan and the account holder will be liable for any deficiency.
  2. The Bank can force the sale or other liquidation of any securities or other investment property in the collateral account and, unless otherwise required by law, can do so without first contacting the account holder.
  3. The account holder is not entitled to choose which securities in the collateral account are liquidated or sold.
  4. The Bank can change its collateral maintenance requirement at any time without notice to clients.
  5. Clients are not entitled to an extension of time to satisfy the Bank’s collateral maintenance requirement.
  6. There may be adverse tax or other consequences to clients if securities are sold or otherwise liquidated by the Bank.
  7. The LMA account is an uncommitted facility, although loans to individuals and trusts may be committed in an amount not to exceed $100,000. The Bank may demand full or partial repayment at any time, and any commitment may be immediately terminated.
  8. For fixed-rate advances and term loans, principal payments made in advance of the end of the applicable fixed-rate period, whether voluntarily or involuntarily (due to demand or liquidation by the Bank), may be subject to a substantial breakage fee as determined by the Bank.
  9. Some restrictions on the use of LMA account proceeds may apply under the terms of loan documents and applicable laws and regulations. The LMA account cannot be used to purchase marketable securities unless specifically agreed by the Bank.

 

HELOC

  • HELOC funds may not be used to purchase, carry or trade securities or repay debt incurred to purchase, carry or trade securities.
  • Interest rate risk–As a variable-rate loan, interest rates and payments can change. Clients should carefully consider these risks before borrowing.
  • Potential repayment volatility – For clients who opt for an initial interest-only period, at the end of this period, they will still owe the original amount borrowed, and the monthly payment will increase significantly and may result in "payment shock" — even if interest rates stay the same. If your clients want to make interest-only payments, you should discuss what the payments will be after the end of the interest-only period.

 

Three questions to ask your financial advisor

  1. What debts should I consider paying down first?
  2. How much money could I potentially save by restructuring or consolidating debts?
  3. Is there a guideline that experts recommend, like a percentage of take-home pay, as a limit on household debt?

Connect with an advisor and start a conversation about your goals.

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1 Bank of America® Premium Rewards® Program Information. How You Earn Points: You earn points when you use your card to make purchases, minus returns, credits and adjustments (“Net Purchases”). The following transactions are not considered purchases and will not earn points: Balance Transfers and Cash Advances (each as defined in your Credit Card Agreement), fees, interest charges, fraudulent transactions and certain other charges. Unlimited 1.5 Points: Earn 1.5 base points for every $1 of Net Purchases (non-Travel and Dining) charged to the card each billing cycle. 2 Points: Earn 2 base points for every $1 of Net Purchases made with the card in the Travel and Dining category, with no limit on the number of points you can earn. Travel and Dining Category: Dining includes Restaurants, including Fast Food, and Drinking Establishments, such as Bars or Taverns. Travel includes: airlines, hotels, motels, timeshares, trailer parks, motor home and recreational vehicle rentals, campgrounds, car rental agencies, truck and trailer rental, cruise lines, travel agencies, tour operators and real estate agents, operators of passenger trains, buses, taxis, limousines, ferries, boat rentals, parking lots and garages, tolls and bridge fees, tourist attractions and exhibits like art galleries, amusement parks, carnivals, circuses, aquariums, zoos and the like. Purchases from some merchants that provide travel-related goods and services will not be eligible, like in-flight goods and services, and duty-free airport purchases. Travel and Dining Category Processing: Merchants are assigned a merchant category code (MCC) based on the merchant’s primary line of business. We do not determine which MCC a merchant chooses to classify itself. We group similar MCCs into Categories to help you earn rewards on purchases made at specific merchants. Your purchase may not qualify to receive the Travel and Dining category earn rate if the merchant does not process transactions under the MCC that corresponds with the Travel and Dining Category, or your purchase is processed through a third-party payment account, mobile/wireless card reader, digital wallet not supported by Bank of America or similar technology where the technology does not support transmission of MCCs. For those Net Purchases, you will earn 1.5 base points per $1. Not all merchants accept all credit cards. How You Use Your Points: When your points balance is 2,500 points or more, you can redeem your points for cash rewards, including a statement credit, an electronic deposit into a Bank of America® checking or savings account, or for credit to an eligible Cash Management Account® with Merrill Lynch Wealth Management® or Merrill Edge® including 529 accounts. Points may also be redeemed for travel at the Travel Center, or gift cards. Cash rewards shall be issued for a U.S. dollar sum and may be requested on demand. Each point redeemed is worth $0.01 (2,500 points = $25). Points Expiration: As long as your account remains open with active charging privileges, points do not expire. Points Forfeiture: If the owner(s) of the card account voluntarily closes the card account, or if for any reason we close the card account, any unredeemed points associated with the account are subject to immediate forfeiture, unless specifically authorized by us. Rewards Program Rules: Program Rules containing additional terms of your credit card rewards program will be sent to you with your new account materials. Other significant terms apply. Program subject to change. 0519RLL.PR.0519

2 The Loan Management Account (LMA account) is a demand line of credit provided by Bank of America, N.A., Member FDIC. Equal Opportunity Lender. The LMA account requires a brokerage account at Merrill Lynch, Pierce, Fenner & Smith Incorporated and sufficient eligible collateral to support a minimum credit facility size of $100,000. All securities are subject to credit approval and Bank of America, N.A. may change its collateral maintenance requirements at any time. Securities-based financing involves special risks and is not for everyone. When considering a securities-based loan, consideration should be given to individual requirements, portfolio composition and risk tolerance, as well as capital gains, portfolio performance expectations and investment time horizon. The securities or other assets in any collateral account may be sold to meet a collateral call without notice to the client, the client is not entitled to an extension of time on the collateral call and the client is not entitled to choose which securities or other assets will be sold. The client can lose more funds than deposited in such collateral account. The LMA account is uncommitted and Bank of America, N.A. may demand full repayment at any time. A complete description of the loan terms can be found within the LMA account agreement. Clients should consult their own independent tax and legal advisors. Some restrictions may apply to purpose loans and not all managed accounts are eligible as collateral. All applications for LMA accounts are subject to approval by Bank of America, N.A.

Before taking out any mortgage or line of credit, borrowers should consult their tax advisor to understand the implications of each of their options.

3 For fixed-rate and term loans, principal payments made in advance of the due date are subject to a breakage fee as determined by the Bank.

4 Fixed-Rate Loan Option at account opening: You may convert a withdrawal from your home equity line of credit (HELOC) account into a Fixed-Rate Loan Option, resulting in fixed monthly payments at a fixed interest rate. The minimum HELOC amount that can be converted at account opening into a Fixed-Rate Loan Option is $15,000 and the maximum amount that can be converted is limited to 90% of the maximum line amount. The minimum loan term is 1 year, and the maximum term will not exceed the account maturity date.

Fixed-Rate Loan Option during loan term: You may convert all or a portion of your outstanding HELOC variable-rate balance to a Fixed-Rate Loan Option, resulting in fixed monthly payments at a fixed interest rate. The minimum outstanding balance that can be converted into a Fixed-Rate Loan Option is $5,000 from an existing HELOC account. The minimum loan term is 1 year, and the maximum term will not exceed the account maturity date. No more than three Fixed-Rate Loan Options may be open at one time. Rates for the Fixed-Rate Loan Option are typically higher than variable rates on the HELOC.

5 The following discounts are available on a new home equity line of credit (HELOC): (1) an “auto pay” discount of 0.25% for setting up automatic payment (at or prior to HELOC account opening) and maintaining such automatic payments from an eligible Bank of America deposit account; (2) an “initial draw” discount of 0.10% for every $10,000 initially withdrawn at account opening (up to 1.50% for initial draws of $150,000 or more) when that minimum balance is maintained for at least the first 3 billing cycles (less any required principal payments); (3) a 0.125% to 0.375% discount for being enrolled or eligible to enroll in the Preferred Rewards program, based on combined qualifying balances at the time of HELOC application; and (4) a 0.25% discount for HELOCs in first lien position at account opening.

6 Preferred Rewards for Wealth Management Program. You are eligible to enroll in the Preferred Rewards for Wealth Management program if you have an active, eligible Bank of America® personal checking or Bank of America Advantage Banking account and maintain a three-month average combined balance in your qualifying Bank of America deposit accounts and/or your qualifying Merrill investment accounts of at least $250,000. All Bank of America Private Bank clients are eligible for the Preferred Rewards for Wealth Management program. Visit bankofamerica.com/preferred-rewards for additional program details. Preferred Rewards for Wealth Management clients do not receive Merrill Edge Self Directed commission waivers or Merrill Guided Investing discounts as part of this program. Credit Card Preferred Rewards for Wealth Management Bonus: Certain credit cards are not eligible to receive the Preferred Rewards for Wealth Management bonus of 75%. A complete list of ineligible cards is available at bankofamerica.com/preferred-rewards. Enrolled clients with eligible credit cards receive the Preferred Rewards for Wealth Management bonus based on their type of card. For example, the Bank of America® Cash Rewards credit card Preferred Rewards for Wealth Management bonus will be applied after all base and bonus earn cash rewards have been calculated on a purchase. For example, a $100 purchase that earns 3% ($3.00) will actually earn $5.25 when the purchase posts to your account. For all other eligible card types, a purchase that earns 100 base points will actually earn 175 points when the purchase posts to your account. If your product receives the 10% customer bonus, the Preferred Rewards for Wealth Management bonus will replace the 10% customer bonus. The Preferred Rewards for Wealth Management bonus is not applied to any account opening bonus, if applicable. The Preferred Rewards for Wealth Management bonus also does not apply to the bonus earn for certain programs. This information can be found in the Program Rules associated with those credit cards. Other terms and conditions apply. If you have an eligible card, please refer to your card’s Program Rules for details about how you will receive the Preferred Rewards for Wealth Management bonus. Program Rules are mailed upon account opening and are accessible through the rewards redemption site via Online Banking or by calling the number on the back of your card.

7 Before taking out any mortgage or line of credit, borrowers should consult their tax advisor to understand the implications of each of their options.

The Premium Rewards credit card program is issued and administered by Bank of America, N.A.

Visa and Visa Signature are registered trademarks of Visa International Service Association and are used by the issuer pursuant to license from Visa U.S.A. Inc. All other company, product and service names may be trademarks or service marks of others and their use does not imply endorsement of, or an association with, this program.

Merrill Lynch, Pierce, Fenner & Smith Incorporated (also referred to as “MLPF&S” or “Merrill”) makes available certain investment products sponsored, managed, distributed, or provided by companies that are affiliates of Bank of America Corporation (“BofA Corp.”). MLPF&S is a registered broker-dealer, registered investment adviser, Member SIPC and a wholly owned subsidiary of BofA Corp. 

Banking, mortgage and home equity products offered by Bank of America, N.A., and affiliated banks, Members FDIC and wholly owned subsidiaries of Bank of America Corporation. Equal Housing Lender. Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice.

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