Financing in Sharon>Question Details

Joshua A. Tr…, Home Buyer in New Sharon, IA

Is it smart to use the equity in your home to pay off credit cards and non secured debts?

Asked by Joshua A. Tremmel, New Sharon, IA Fri Jan 2, 2009

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Hi Joshua,

You ask Is it smart to use the equity in your home to pay off credit cards and non secured debts?

I am pleased to note that you may have equity in your house--generally, a lot of home equity has gone away, leaving many folks hanging on with payments for a house that may be worth less than what they could sell it for. So it is refreshing to have a question like yours.

Is it smart to pay off high interest loans with a low interest loan? Well yes, if you are able to keep the credit cards from growing back to high balances. But if you plan to erode your home equity in favor of large credit limits available on your credit cards, then it's the dumbest thing you could ever do. Is that clear?

Dane Hahn
1 vote Thank Flag Link Sun Jan 4, 2009
Joshua the one thing you do not want to do is risk your home by refinancing to a higher amount that will pout you at more financial risk. There are other alternatives to taking the equity for your home. You may be able to consolidate the non secured and credit cards without taxing your home or your finances. There are credit services that are legitamate, dont get sucked into paying a service. you also can renegotiate with the cards themselve sto get your rate or paymenst down. Avoid putting your house at risk at any cost. good luck with working things out.
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0 votes Thank Flag Link Sat Jan 3, 2009
It is generally a good idea to eliminate credit card debt and nonsecured debt BUT you must be aware of how you racked up this debt in the first place. Will it be a cycle? Will you go out and get new debt (unsecured and credit card) making it a net gaing of zero.

Or will increasing the loan on your house put you in danger of foreclosure if you fall behind in payments -- you would be converting your nonrecourse loans to a recourse loan. Just remember nonpayment of credit cards and unsecured loans may ruin your credit (temporarily) but they would not have the option of foreclosure.

I would consult your financial planner or accountant to see what is the best scenario considering your personal sitauation.
0 votes Thank Flag Link Sat Jan 3, 2009
Best to speak with mortgage broker determine what your interest rate would be and cost refi with cash out.

Place all on an excel spread sheet run all the #'s determine what is your better option. You need determine your short / long term range regarding your home if your intent sale within few years may not be worth expense refi.
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0 votes Thank Flag Link Sat Jan 3, 2009
Most likely the interest on your home would be lower than the interest on your credit cards, you could save money doing it this way. You also must calculate the cost of getting the loan.

Bottom line get an estimate and calculate how much it cost both ways.
0 votes Thank Flag Link Sat Jan 3, 2009
This is a very good question. Generally I would say it is not a good idea to use your home to pay off debt. But there are times when the extra cash flow is helpful or even necessary. You might be able to lower your interest rate which could be a smart financial move depending on how long you will be in your home. I would be happy to do a mortgage analysis for you or you're welcome to use the mortgage calculaters on my website.

Dominique Ressurreicao
American Pacific Mortgage
0 votes Thank Flag Link Sat Jan 3, 2009
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