Refinance or not?

**RedDeb** · 11-09-2010, 07:42 PM

We have a mortage at 6.5%. We've been paying on it for 11 years and we have plenty of equity in the house. We have credit card debt of approximately $35,000! Should we refinance our home to a lower interest rate and pay off the credit card debt? Or should we just continue on and try to debt snowball it when we can and chew away at the mortgage at the current interest rate?

**Russ** · 11-09-2010, 07:49 PM

We need more information.

What is the balance? Was it a 30 year mortgage?

**DebiD** · 11-10-2010, 08:39 AM

This is RedDeb again - couldn't log in again under that name for some reason. Sorry.
Anyway, yes, it was a 30 year loan and I believe the balance is around $95,000. It would probably appraise at around $225,000.

**Greebo** · 11-10-2010, 08:45 AM

Yes and No.

Yes you should refinance - and since you have plenty of equity, you should have no problem handling the payment on a 15 year mortgage at the 2 point lower rate you can get right now.

NO YOU SHOULD NOT PAY OFF YOUR CREDIT CARDS BY TAKING EQUITY OUT OF YOUR HOUSE

If you put $35k of cc debt on your house you will increase risk on your house and worse, stretch the payment of that debt out to 15 or 30 years where now if you pay it off with intense effort you are probably 1 to 2 years from being CC debt free.

Further, you'll be transferring UNSECURED debt (which is debt that can be, if necessary, bankrupted) to debt that is SECURED - meaning if you bankrupt you lose the asset associated - aka your house.

**Nishu** · 11-10-2010, 09:37 AM

I think that if a credit card company wins a lawsuit against you they can get a lein on your home. I woudn't base your decision on which creditor can take the house until you've researched your state laws.

I would consider using home equity to pay off credit cards, but only after you've committed to a solid budget and repayment plan and have stayed on it for awhile, at least 6 months. If you've just now committed to paying down your debt, I wouldn't even think about it. The thing about doing it is that if you're not completely committed to staying out of debt, you'll just run your cards right back up again.

**Greebo** · 11-10-2010, 09:53 AM

Originally Posted by Nishu

I think that if a credit card company wins a lawsuit against you they can get a lein on your home. I woudn't base your decision on which creditor can take the house until you've researched your state laws.

If they went that path, that's when you bankrupt.

I would consider using home equity to pay off credit cards, but only after you've committed to a solid budget and repayment plan and have stayed on it for awhile, at least 6 months. If you've just now committed to paying down your debt, I wouldn't even think about it. The thing about doing it is that if you're not completely committed to staying out of debt, you'll just run your cards right back up again.

As you know, I vehemently disagree.

So, by the way, does Dave.

**Nishu** · 11-10-2010, 10:15 AM

Originally Posted by Greebo

If they went that path, that's when you bankrupt.

You're basing your recommendation on the idea that they'll just be able to declare bankruptcy in the future? Did we not have like a 6 page discussion some time ago about how evil and dishonest it was to walk away from your debts?

They have 100k in equity on a house. They're no where the point they need to consider bankruptcy unless that has been their emergency plan all along.

BUT, for the sake of humoring you, I will say that there are legal implications of declaring bankruptcy when you have over 100k in equity on your home. It's all going to depend on state law.
Chapter 7 Bankruptcy filing and exemptions

Exemptions on house and car:
Bankruptcy Chapter 7 exemptions apply only if you have equity (your current home value minus costs of sale less balance on mortgage or other liens) in the property. If your home equity exceeds the State or Federal exemption, you may lose the home. However, if you have no equity in the house, it cannot be used to pay off your debts. In this case, you can keep the home as long as you pay the mortgage.

The same is true for a car, if you have no equity, you can keep it. If your equity in the car exceeds the exemption, it can be sold off to repay your car loan. Learn more about bankruptcy Chapter 7 exemptions.

**Greebo** · 11-10-2010, 12:08 PM

I'm not talking about walking away if you have the ABILITY to repay, of course. I was talking about if you were in a situation where payment isn't actually possible.

Stepping back from that particular issue, however, no that's not the basis of my advice. The main reasons are that 1) trading non-secured debt for secured debt is foolhardy, and 2) HELOCs to repay debt repay nothing, they only move the debt.

The DR program is first and foremost about changing BEHAVIOR - which means, among other things, committing to pay off your debt ASAP - not finding new ways to pay off the debt over longer times with lower payments.

My first objection to the idea of moving cc debt to house debt still stands. To expand on that point - that 30k put onto a 15 yr mortgage at 5% turns into 63k over the course of the 15 years it takes to pay it off.

If you took 2 years to pay it off as BS2 debt at 18% then you'll pay less than 10k in interest (WAY LESS since that was 30k *.18 * 2) to eliminate the same debt.

**mndtrp** · 11-10-2010, 07:10 PM

As Greebo says, you aren't paying anything off with a HELOC, you're just transferring that debt somewhere else. If you are going to do anything like that, get a 0% interest rate credit card, and transfer your balance there, assuming low fees.

I would refinance, and take the extra money saved from the lower house payment to pay off the credit debt.

**HappyMama** · 11-10-2010, 07:32 PM

Originally Posted by mndtrp

As Greebo says, you aren't paying anything off with a HELOC, you're just transferring that debt somewhere else. If you are going to do anything like that, get a 0% interest rate credit card, and transfer your balance there, assuming low fees.

I would refinance, and take the extra money saved from the lower house payment to pay off the credit debt.

I agree with Greebo and Mdtrp!

Don’t convert an unsecured debt into a secured debt. A secured loan means that the loan is backed up with collateral. Collateral in this instance being your house. One of the most important aspects of your life and financial plan is a roof over your head. No disrespect but you have lots of equity , don't put it in jeopardy or the rood over your families head for an unsecured loan that you made secured. Kwim?

**Pianolady** · 11-11-2010, 12:08 AM

Definitely refinance at the lowest rate possible. Avoid cashing out, the rate goes up if you do (meaning no cc included in the loan). Use the $ you'll save in the house payment towards the cc debt. Even going from 6.5% to 4% interest on the mortgage will be a substantial savings. You could probably get a 20 year loan at a lower rate than a 30 year loan, and avoid adding another decade of payments onto your mortgage. A 15 year loan will probably have the lowest rate.

**Lefty** · 11-11-2010, 01:46 PM

I agree with most here...your just moving debt around. Use the money you would be paying on the larger home loan and put it towards the snowball...besides winter is almost here...don't you like snow!