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How about some opinions? My husband and I right now have about 20,000 in credit card debt. We want to get rid of it obviously. Just debating about the best way.
He has been considering trying to get a lower interest home equity loan. We have about 50,000-60,000 worth of equity in the home. We also have about 20,000 cash in a fairly high yielding money market account. This doesn't include 401 etc. Now many people would say just pay them off with your cash which might be the best thing. My husband, however, is reluctant to part with ALL our cash savings. We could obviously do that, but would that be best. Other alternative might be secured loan with the money market funds. The main thing is we don't want to continue paying the ridiculous interest rates on those cards. (The interest rates are not too bad as far as credit cards go, but still higher than a home equity loan would be.)
Read these boards and you'll see that a lot of people have run into problems because they borrowed against the equity in their home to pay off credit cards. Just pay them off now with the cash you have on hand and save like crazy until you replenish your savings.
well if you will be able to pay them off anyway and the rate will be lower on a loan against them home and its tax deductable (not sure if it is- i would look into that)
then you are much better off taking out a loan and paying off the cc
well if you will be able to pay them off anyway and the rate will be lower on a loan against them home and its tax deductable (not sure if it is- i would look into that)
then you are much better off taking out a loan and paying off the cc
You're never better off putting your credit card debt on your house when you have the cash available to pay off the cards.
They can pay off the cards, keep full equity in their home, and replenish their savings in a relatively short time. Why run the risk of losing your house due to consumer debt? It doesn't make sense.
personally i think its a bad idea to do anything with the equity in your home, apart from remodeling your home. and even then i'd keep the reigns on. but thats just me.
It is a very bad idea. You're converting unsecured debt into secured debt. If for some reason you can't pay you will lose your home. If you can't pay the credit card then at most your credit will be ruined.
I would pay down $15k with cash, keep $5k in high yield savings and then tackle the remaining $5k aggressively.
But the most important thing... DO NOT USE CREDIT CARDS!!!! LOCK THEM AWAY! Learn to budget and make do with what you earn. Live within your means.
I would not use the home equity loan. I wouldn't want last year's vacation to be secured by my house. I would pay it all with the cash and rebuild the reserves. It will be easier without the credit card payment, but you must stop using the credit card or you will be in the same spot very soon. If using all of the cash makes you uncomfortable, I might keep a thousand or two in case of emergency and pay the rest on the credit card. Otherwise, you are effectively taking out cash on the credit card at a high interest rate to earn a 4% return. It will hurt to give up that chunk of cash, but let that be the lesson that keeps you from running up credit card bills.
I know it is sometimes tempting to borrow against your house at a lower rate to pay off a higher rate but it is not a good idea. If either of you lost your job and you had trouble making the payment for a while until you found a new job, it is much worse for you to have your house at risk than have your credit card at risk. Deferring payments on your credit card might get your card cancelled and ruin your credit rating, but not making payments on your house could put you out on the street.
I would use as much of your cash as your husband is comfortable parting with and pay down most of the card balance, and then I would tighten my belt in other areas and try to double up on the credit card payments. Once you have it paid off you should keep making the same payments, but to your savings acct instead of your credit card.
I totally agree, if you have liquid cash and it's not tied up in a high-interest security, use it for the debt. It's only getting 3% or so anyway. We consolidated 2 cars and all credit cards to home equity at 5.75%. However, the money was available in a CD if things hit the fan. Also agree that without tightening the reigns, that credit card will be at 20K in a month again, then you'll have high-interest credit card debt and a mortgage. Use the semi-worthless cash and get out of debt. Then pay your savings as you would a mortgage or credit card payment, and don't skip any.
I know it is sometimes tempting to borrow against your house at a lower rate to pay off a higher rate but it is not a good idea. If either of you lost your job and you had trouble making the payment for a while until you found a new job, it is much worse for you to have your house at risk than have your credit card at risk. Deferring payments on your credit card might get your card cancelled and ruin your credit rating, but not making payments on your house could put you out on the street.
I agree with you in principle, but since the OP has $20k in cash reserves I might be more tempted to suggest getting a home equity loan (if the bank will do it). If they fell on hard times, that $20k would allow them to keep their house for a while. If they exhaust their cash reserves on the $20k in CC debt and then fall on hard times, they're in a very tight bind.
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