I am asked this question all the time and there is no simple answer. I depends on a numbers of factors. Here are some questions you need to ask yourself.
1) Are you paying off credit card debt monthly or just the minimum payments?
2) What is the rate that you are paying for credit card debt?
3) How long are you planning on owning this home?
4) How much is my home worth?
5) Do I have enough equity to incorporate my short term debts?
6) Is my credit card debt tax deductible?
Karen and Bill where referred by their attorney. There daughter was in foreclosure, they wanted to buy the home and then rent it back to her.
When I ran Karen and Bill’s credit, I immediately saw a number of issues. I could see that they refinanced about three months ago, so I asked them why they didn’t include their credit card debt when they refinanced. Their answer was actually shocking. “We were never asked by the loan officer and we didn’t know we could.”
I explained to them, that because they had $80,000 worth of credit card debt, their debt ratio was too high to be able to qualify for the purchase of their daughter’s home. Karen was almost in tears.
Since they still had a lot of equity in their home I recommended that we refinance again. Doing a refinance again after three months sounds crazy, but not in this case. They would be saving $2,200 per month by paying off the credit card debt. Can you imagine $2,200!
Once that process was completed, we then began the process of negotiating the purchase of the their daughter’s home. I am now in the process of doing a mortgage for the purchase. They now qualify with out any debt ratio issues. In this scenario, paying off the credit card debt allowed them to accomplish their goal to help their daughter.
Joe Petrowsky, NMLS #6869
Right Trac Financial Group, Inc. NMLS #2709
110 Main St.
Manchester, Ct. 06042
Office: 860 647-7701 x116
Fax: 860 647-8940
Cell: 860 836-9294
Email: joe@righttracfg.com
I don't advocate bankruptcy and it's been grossly misused for the last few decades, but as a final financial tool to save a family from financial destruction it's a necessary tool. But wiping out debts and then having nowhere to live - may as well just go down with the ship. That's what a huge proportion of financial failures did in the last five years, "conveniently" lowering their credit-card debt costs by chaining it to their sole significant asset. Stupid move, stupider advice.
If the debt is a result of spending on groceries, trips, non-capital expenses then I would also say absolutely no way would this be a good idea, it would be a disaster and it would stall the inevitable foreclosure to a future date. The behavior would be the problem. If the credit is used to pay for the niceties (trips) and/or food and gas then you have a a couple living beyond their means or to the "Jones' standard" kinda like the Federal Government, but unlike the Government the couple can't print money. Here the behavior is the problem. Why, You would roll the debt up, and you would have to hope that the home value would increase so you can roll the inevitable future debt into another larger loan. Now Isn't that on of the ways we got into trouble the last time? If the debt was a result of capital expense or single occurrences it is another matter. They could have paid for an addition and costs got out of hand; or they had a large one-time bill, be it medical, car, house, child, education or several. The large expenses would be compounded with ignorance of finances, a very common issue we see all the time. These factors when reviewed and analyzed to make sure the debt is directly related to the issue, and I have asked for docs, then a refinance is an option. A HELOC maybe a better option. Always ask who get paid how much in a refinancing. Caveat Emptor.
I am disappointed that Patch has turned to running these self-serving "adverblogs" without a prominent disclaimer or notice. Business owners have many things of interest to contribute, but biased selling of their products is inappropriate in this context.
In the interests of upholding standards of writing here, though, I'll point out that it's usual to capitalize the first word of sentences, put question marks inside quotes, void using multiple punctuation marks, and use three dots for an ellipsis. :)
And Ron's correct: equity should only be tapped through a second loan, never by taking cash from refinancing.
*It is the *loser* who has to go, though.
perhaps a business may have high limits, but from a laymans point, anything beyond 30/50k is excessive for the widdle middle class and below. if stated income is fraudulently claimed to gain such a high limit, then there's worse to come anyway.
"You just can't fix stupid". (Ron White)
I'm betting they racked up $80K on several cards, not just one.
I would be surprised if most homeowners through that period didn't acquire 3-6 cards with an aggregate limit approaching $100k. I've had only one card reduced in limit, one issued by a consumer lender that was in deep trouble and trying to shed excess credit liability. So anyone who acquired that credit likely still has it, even if their house is as upside down as a pineapple cake. Scissors are your friend, folks.
The debt I would agree to keep up with the Jones' and the parents are not willing to let the kids grow up. That is a huge mistake that will TAKE bonuses instead of pay bonuses. That is why I tell parents not to sign for loans for kids or give them money to get them out of errors of their own making. A few exceptions apply. The other option is to have another set of mouths to feed forever. Do you think Joe will pay for dinner? :-) I just had a parent that co-signed a student loan 6 years ago for a son that now is causing the parents to get collection calls. The dad is out of a job now for several years and working several part time jobs trying to make ends meet. This is a financial disaster for the 'rents. Then the son wants them to co-sign a rolled up loan adding to the 'rent's liability. We have discussed a tough love course for the son, and I am trying to assist with a work out for the 'rents on the loan they did sign for.
Daniella, I would believe that either the income crashed, a possibility, or you are correct in a "miss statement" of income. Jim is correct. They increased limits every few months especially if you had low utilization , and In one month (~2006) my wife and I had received offers that we joked about but it was over 500K for me and almost a $1MM for her. Her FICO was better by some 40 pts. LOL.
The problem is many people get into trouble with plastic because of the disconnect with cash and plastic. In the mind it is not cash, granted it needs to be paid with cash sooner or later. Being debt free or having low and manageable debt is a wonderful place to be!
Cruises are set up to extract as much money from the captives as possible. Anyone going on a cruise, especially on the lower-end cattle-car lines, needs to make detailed spending plans and read the fine print carefully to avoid ending up with a huge disembarkation tab. You can't put ALL of your brain on vacation.
abstraction is not a well taught or understood concept for these vulnerable individuals, that, or they are simply 'experts at self denial' like a glass of fine wine, when full, you have so much to look forward to, and then when its nearly gone you want for more!
But more generally, it's not about the simple money/interest numbers, but a more complex consideration of what you're willing to lose if the dice roll badly for you. If I got hammered by medical or other unexpected costs, or lost most of my income, I'd prefer to be able to write off unsecured debt (and my creditworthiness) and keep my house, rather than losing that financial keystone because it was more convenient, short-term, to roll excess spending into it.