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Posted: 10/30/2006 5:10:55 PM EDT
Lets say a person has a large amount of high interest credit card debt, and the same person has a large amount of equity in thier house, would it not be wise to get a home equity loan and consolidate the bills and lower the interest rate substantially?  Isn't it foolish to continue getting killed by the credit card interest rates when you cound take out a home equity loan and lower the rates (providing that you continue to pay the debt down as fast as you can)?

thank you.
Link Posted: 10/30/2006 5:12:17 PM EDT
[#1]
www.clarkhoward.com
Link Posted: 10/30/2006 5:12:27 PM EDT
[#2]

Quoted:
Lets say a person has a large amount of high interest credit card debt, and the same person has a large amount of equity in thier house, would it not be wise to get a home equity loan and consolidate the bills and lower the interest rate substantially?  Isn't it foolish to continue getting killed by the credit card interest rates when you cound take out a home equity loan and lower the rates (providing that you continue to pay the debt down as fast as you can)?

thank you.


Dee dee dee
Link Posted: 10/30/2006 5:16:45 PM EDT
[#3]
Replacing one type of debt with another type of debt is never a solution - it's just reshuffling the deck.  A lot of people who THINK they've got tons of equity in their house may get a nasty surprise when they try to sell it and discover that their local real estame market has cooled.

Because credit card debt is easier to use - in everyday life - when people take out a second mortgage to cover their credit card debt, they typically start running up their credit cards again, just to be in the same situation a year later.  



Not saying either of those situations apply to you (obviously, I don't know you).  Perhaps you had a huge unexpected medical expense that you put on your credit card, and you don't have a habit of running up debt.  In that kind of case, I don't think it's too bad to transform the kind of high-interest credit card debt to a lower-interest equity debt - but obviously the better solution is to just pay it off quickly, even if that means cutting cost elsewhere.  

However, if you basically just ran up a lot of credit card debt because you buy more shit than you can really afford, then the solution lies in changing your spending habit and life-style, not in shuffling debt around.  If you do decide to roll your consumer debt into your mortgage, make sure you strictly control your future credit card debt to avoid repeating the cycle.
Link Posted: 10/30/2006 5:18:44 PM EDT
[#4]

Quoted:
Replacing one type of debt with another type of debt is never a solution - it's just reshuffling the deck.  A lot of people who THINK they've got tons of equity in their house may get a nasty surprise when they try to sell it and discover that their local real estame market has cooled.

Because credit card debt is easier to use - in everyday life - when people take out a second mortgage to cover their credit card debt, they typically start running up their credit cards again, just to be in the same situation a year later.  



Not saying either of those situations apply to you (obviously, I don't know you).  Perhaps you had a huge unexpected medical expense that you put on your credit card, and you don't have a habit of running up debt.  In that kind of case, I don't think it's too bad to transform the kind of high-interest credit card debt to a lower-interest equity debt - but obviously the better solution is to just pay it off quickly, even if that means cutting cost elsewhere.  

However, if you basically just ran up a lot of credit card debt because you buy more shit than you can really afford, then the solution lies in changing your spending habit and life-style, not in shuffling debt around.  If you do decide to roll your consumer debt into your mortgage, make sure you strictly control your future credit card debt to avoid repeating the cycle.
That is good advice.
Link Posted: 10/30/2006 5:21:08 PM EDT
[#5]
DK-Prof is right on...I know from experience.I also know that if you call the companies with a sob-story they will usually lower the rates quite a bit. Tell them you are going to transfer it to a card giving 0% for a year and they will most likely match that offer.You could also tell the you are going to be late/filing bankruptcy/be getting laid off soon etc. etc. Often they will lower your rates to nothing to keep from losing your buisness.
Link Posted: 10/30/2006 5:23:14 PM EDT
[#6]
remember that bankruptcy isn't as easy to file now as it was.  did you really want to put your house up for collateral to pay off the debt?  what would happen if you lost your job or became disabled?  something to look into before you decide.
Link Posted: 10/30/2006 5:23:29 PM EDT
[#7]
Home equity loans for people who spend beyond there means are a great way to lose your house. I do this stuff for a living. Do not convert unsecured debt to secured debt.

I have heard positive things about David Ramsey.  Google him and think about what caused your problem.

Mark
Link Posted: 10/30/2006 5:27:34 PM EDT
[#8]

Quoted:
remember that bankruptcy isn't as easy to file now as it was.  did you really want to put your house up for collateral to pay off the debt?  what would happen if you lost your job or became disabled?  something to look into before you decide.



+1.  I would never replace unsecured debt with secured debt...  just not a good plan for me.  YMMV...
Link Posted: 10/30/2006 5:28:08 PM EDT
[#9]
I used to work with an attorney. We were talking one day and this subject came up. His opinion? "It's a F-N chump move." He further said from what he's seen doing BKs most people get the loan and then continue running up the cards thus sinking deeper.

His advice: Bite the bullet, cut them up, and pay them off.
Link Posted: 10/30/2006 5:35:40 PM EDT
[#10]
I've done both and 20 years ago had to go the Consumer Credit Counseling Service.  Now I bite the bullet for a year and pay them down.  As you pay the cards off the payment goes way down. the 2nd mortgage will stay the same.  Better to take a line of credit.  Then you MUST pay off all but 1 card and keep it low.
Link Posted: 10/30/2006 5:40:33 PM EDT
[#11]
If you already have the CC debt then refinance it into a mortgage.

It is foolish to continue to carry it on CC when the intrest on the mortgage is deductable on your income taxes.

It's hard but do away with all the cards except for one to use for gas and other things that require a card like car rental then pay it off each month.

Too much debt is just as bad as no credit as in you get crappy intrest rates on loans and your score is much lower than it could be.

Link Posted: 10/30/2006 5:42:47 PM EDT
[#12]

Quoted:
Replacing one type of debt with another type of debt is never a solution - it's just reshuffling the deck.  A lot of people who THINK they've got tons of equity in their house may get a nasty surprise when they try to sell it and discover that their local real estame market has cooled.


Replacing high interest debt with low interest debt is actually sound money-management, so long as you don't get in the habit of getting into high interest debt.  

I won't lend you more than 80% of your equity in the home.  In my state, it's not just a good idea, it's the law.  If the housing market cools and your life goes to hell, you may not get squat out of your house, but at least I will probably get paid.  


Because credit card debt is easier to use - in everyday life - when people take out a second mortgage to cover their credit card debt, they typically start running up their credit cards again, just to be in the same situation a year later.  

Most people seem to reform their ways when they get to the point of remortgaging the roof over their head to pay the plastic demons.  Banks wouldn't be in business otherwise.  It's that 5% of people that slips through the cracks that burns my balls.

We require debt consolidators to close the credit card accounts that we pay off, and we enforce it by paying and dealing with the credit card companies directly.  Doesn't mean some high-fee underwriter won't issue you a card later, but we remove the initial temptation.  Besides, the debt-ratio test is supposed to weed out habitual overspenders anyway.  Doesn't always work, but usually.  



Not saying either of those situations apply to you (obviously, I don't know you).  Perhaps you had a huge unexpected medical expense that you put on your credit card, and you don't have a habit of running up debt.  In that kind of case, I don't think it's too bad to transform the kind of high-interest credit card debt to a lower-interest equity debt - but obviously the better solution is to just pay it off quickly, even if that means cutting cost elsewhere.

However, if you basically just ran up a lot of credit card debt because you buy more shit than you can really afford, then the solution lies in changing your spending habit and life-style, not in shuffling debt around.  If you do decide to roll your consumer debt into your mortgage, make sure you strictly control your future credit card debt to avoid repeating the cycle.


Very sound advice Mr. DK-Prof!
Link Posted: 10/30/2006 5:43:44 PM EDT
[#13]
Good replies!  

Check out Dave Ramsey.  www.daveramsey.com

he has some great advice.
Link Posted: 10/30/2006 5:45:21 PM EDT
[#14]
Go buy Dave Ramsey's Total Money Makeover.


If you're going to do something about some credit card debt, read that book FIRST.

I can't comment on the home equity stuff, but I will be taking a loan out against my 401k to help pay off debt.  However, the whole process of getting out of debt has to start with an attitude adjustment.  STOP buying things you can't afford.  I've done so, and have gone most of this year without using any credit.  

I personally don't feel bad or hesitant to take money out of my 401k, because in my opinion, having money that's EARNING only around 12% while being in debt that's COSTING me 20, 25 or more % just doesn't make sense.  In fact, I'd wipe out my 401k completely if it paid off my debt completely, and then start over.

Then, with my change in attitude, I would nix all but one of my credit cards, have the limit lowered to an amount I can handle if I have to use it, but per the book above, I'd have my Emergency Fund in place, so I wouldn't have to.  I'd just have recurring bills paid by the CC and pay it off every month.  
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