Would You Get a Secured Line of Credit?

**mom2three** · 10-24-2011, 10:42 AM

I'm tired of doing the credit card bounce and we'd like to consolidate our debt to one place. We currently owe approximately $27 K. One of our banks will give us a secured line of credit for this amount at prime +1% (now at 4%). It will require a $150 setup fee + interest only monthly payments. Other payments are payable anytime. I am currently trying to get our food costs down, but struggle with our location (PEI, Canada), our food restrictions (gluten and sulfite free, limited dairy + others). I buy very little processed food, garden, can, freeze, etc., but we eat some expensive foods- beans and rice is out as one child only tolerates some beans, and another can't eat much rice. We're currently testing one child for diabetes. We cannot bring gluten into the house as me and one of my children have zero tolerance for it. My children are young (11, ,7,5, almost 3, 1) and are involved in some sports. We do not have expensive hobbies except the kids are involved in some sports which are accounted for in the budget. Hubby earns a decent wage for this part of the country, but after taxes brings home about 60% of his pay. I find the finances depressing as we should be doing better. We have one vehicle and hubby uses transit ($60/mth) to get to work. Here is the plan if we do this:

get secured line of credit
cancel MBNA card (14 K limit)
reduce limits on VISA, Mastercard, and Amex (hubby wants one of each for travel purposes, each is ~20K, would reduce each to 10K)
We have one other line of credit that we would reduce the limit to 5K).

We have a conventional mortgage (value of home ~205K)

Would you do this?

**Russ** · 10-24-2011, 10:46 AM

I did it, twice!
The first time I consolidated debt, and rang it right back up. << DUMMY!

The 2nd time, I built a barn, so I added value to my property but still it sucks having that debt. You can see in my sig I have less than $7K to pay on it but it still sucks to have that debt.

You MUST STOP using those CC's if you do go this route.

**mom2three** · 10-24-2011, 10:52 AM

We would stop credit cards except for hubby's business travel (which he is reimbursed for and isn't often) and online purchases for special food (which is usually paid for by the grocery budget or the irregular expense account).

**Greebo** · 10-24-2011, 10:52 AM

Secured by what, your home?

Absolutely not.

Why?

Because you're transferring the debt to a payment model that will cost you thousands more, long term.

Because if you find it hard to make payments, now your house is at even greater risk.

Because this is a short-cut and won't reinforce the need to stop using credit cards to fulfill short term wants with long term costs.

**HappyMama** · 10-24-2011, 10:56 AM

Oh my Greebo took the words right out of my mouth.

"Secured by what, your home?

Absolutely not.

Why?

Because you're transferring the debt to a payment model that will cost you thousands more, long term.

Because if you find it hard to make payments, now your house is at even greater risk."
Greebo

I couldn't have said it better. You are taking an unsecured debt and securing it with your home ( the roof over your head) No way.

**Greebo** · 10-24-2011, 11:04 AM

Assuming you paid the 27k in payments like a traditional 30 yr fixed, at 4% your total interest paid would be over $19,000.

And that's assuming that you never gave into the temptation to just pay "interest only".

If you'll give me the break down of how much you owe on each card, your interest rate for each and your minimum payment on each, I'll tell you how long it will take you to pay it all off on minimums only and what your total interest paid would be

**Russ** · 10-24-2011, 11:20 AM

30 year LOC? I didn't know you could get an interest only term for that length of time.

**Greebo** · 10-24-2011, 11:27 AM

Originally Posted by Russ

30 year LOC? I didn't know you could get an interest only term for that length of time.

I know that typically those LOC's have a 10 year draw period, after which they convert to a standard amortized loan, though I don't know the specifics. I just used 30 as an extreme example.

**Wendy99** · 10-29-2011, 11:31 AM

Don't even do it with an unsecured line of credit, we have rolled all of our debt on to an unsecured line of credit and then paid it off by refinancing our mortgage twice now. Our line of credit is up there again, but we refuse to refinance our mortgage to pay for it again. It's a vicious cycle you need to stay away from. It's so hard, yet so easy to become trapped. Do everything you can to pay off your debt without the line of credit. Moving the debt around does not make it go away.

**Pianolady** · 10-29-2011, 11:42 AM

No absolutely not. The stress of having it tied to your house is terrible. Did it once a long time ago, then husband's business went slow with the economy, and we struggled to pay it off. After 10 years you'll end up just rolling it over into another equity line to avoid having to pay large monthly payments, it can be a never-ending proposition. Never again.

We ended up selling all the "stuff" we'd bought to pay off the equity line in the end, including a car we really did need. It was difficult. But we did learn our lesson and have never gone down this road again.