Credit Card Debt Home Equity Loan

Consider this:
1. I have $30k in credit card debt.
2. I have a 1st mortgage for $200k (4%) and a Home Equity line of $170k (at prime rate) with no additional credit available.
3. I am buying another house at the end of April.

Would I be better off refinancing my Home Equity and Credit Cards into a new Home Equity loan, or just stick with it as is?

I have heard that I may be able to get better rates on my loan for my new house if I refinance. Could this be true?

Thoughts? Opinions? Alternatives?

You don't mention how much equity you have left in the home, but lets assume you have some equity. You would not want to "max out" your equity. Save at least 5-10% since you are going to be buying another home soon. Now if you have equity left to refinance your equity loan & pay down some credit cards, by all means do so. To best improve your credit score, pay off what you can, but at least reduce each credit card so that you have some available credit if any are at or near their limits. These are important factors in credit scoring and will get you a better rate on your new home. Its best not to close the cards that you pay off. Having that available credit will help your score. Close the cards after you secure your new home loan. Good luck!

2005-12-14 11:03:49 by Sean J

Some of the principles behind consolidating your debt explained.

I have about $5k in credit card debt which accumulated from furnishing a new house 4 years ago and having two children. I have $40k in equity in my home (married a builder,lol). I'm tired of paying $150/month when $77 of it is finance charges. Monthly finances (child care, etc.) prohibit me from paying $500 month towards credit cards. Help.

Have you heard of the debt snowball? It's a method of repayment that uses the money you have to concentrate on paying down debts one at a time.
Using you home equity is tempting, but remember, you are trading unsecured debt for secure debt with your home as collateral.
The amount you owe is not that much. I don't think it's worth the risk.
Consistently paying as much extra toward the balance owed as possible will make an impact.
Also, if you've been paying on time and a loyal customer, call your creditors and ask if they will lower your interest rates.

2009-09-15 08:27:31 by brinkie69

Price: $9.95 $9.95

my credit card debt is $17000 and my loan is $9000. And what if I loose my job?

Just make more debt mate. Buy a boxing ring on credit, I am sure you'll have fun with it. If you lose your job you can complain like everyone else is doing.

2009-02-14 12:26:00 by L T

Price: $5.95 $5.95

Hi--
It's amazing how quickly you can go from livin' phat to flat broke.
My husband and I have $60,000 in home equity mostly from a very large down payment about 6 months ago. And now are about $15,000 in the hole with credit cards at about 10%.
I think taking out a home equity loan (we are 6% on that one) is a good idea, but don't know that much about it. Will it damage credit ratings, etc?
We can pay the bills just fine but don't like the fact that amex owns our azzes.
Any advice greatly appreciated. Thanks!!

This may not be the answer you wanted to hear. but here is a quick analysis.

You have a lifestyle problem. The reason you went from living "phat" to "flat" is that you bought a whole bunch of junk on credit because you couldn't afford to pay for it with cash. In translation, you've been living beyond your means for the last 6 months; it's just taken this long for it to catch up with you and you to come to the realization that you have to find some way to pay for all this.

There is a fundamental problem with taking equity out of your home to pay the bills in your situation. In 6 months, you managed to build $15k in credit card debt. If you pull $15k of equity out of your home, you can pay the credit cards off (nevermind the fact that you'll be paying it off over 30 years or however long the loan terms call for). The problem is that if you don't change the way you handle your money (see paragraph #2), in 6 months you'll be back int he same boat: a bunch of credit card debt and no way to pay for it except to pull more equity out of your home. That works fine once, or maybe even twice. However, it's a losing plan in the long term because you'll eventually have no more equity to pull out and you'll be stuck with the credit debt AND the increased mortgage payments.

If you take the equity in your home and turn that into cash to pay off the credit card debt, you really need to cut up those credit cards, close accounts, and vow to not use credit cards again. If you don't change these habits, you will find yourself in this situation again down the road, and someone, be it AmEx or the mortgage company, is going to continue to "own your azzes" for a very long time.

Good luck.

2007-09-04 13:34:40 by lil sammy

Is there a better option? My credit union is offering a consolidation loan and telling me that the average in our area is about 13.87 percent.

A home equity loan if often touted as a good way to pay off credit card debt, especially in areas where homes have greatly increased in price; however, you should know that technically, the interest on such a loan is NOT considered deductible by the IRS unless the loan is used to improve the property. It's likely that you could claim it anyway without the IRS auditing you, but it could happen, and in that case, you'd have to pay any back taxes plus interest to the IRS. This is a position you seriously want to avoid.

Secondly, you're betting against your house that you can afford to pay this loan, Are you willing to close all the credit accounts if you take this loan, so you won't be tempted to run the balances up again? You won't have a way to pay them off again if you do.

Remember that you're possibly putting yourself in the position that, should you need to sell the house for some reason, that you'd lose the equity you've gained over however long you've owned it. Is this a good risk?

I have done this, and not long afterward, the prices of houses in my area dropped. I was stuck for quite a while until prices went back up, since I'd have to pay the balance on the first mortgage plus the balance of the home equity loan, and when prices finally went back up far enough that I could afford to sell, I got far less when I sold my house than I could have.

So, unless you can very quickly pay off the home equity loan, and you know you can resist using your other credit again, it's risky.

2006-03-27 11:02:59 by LeavingTheGrid