Should we looke for a 2nd mortgate to pay off very high credit card debt?

Question

Over the past years and due to certain circumstances, we have a lot of credit card debt - approx. 50,000. I have never looked into a second mortage but in researching debt reduction I have seen it as an option. Should we get a second mortgage to pay off these debts? What type of interest can I expect on a 2nd mortgage with average but not great credit. I am drowning here and and clueless as to what to do - I am beginning to read Dave Ramsey's book as well as Scott Bilkers in hopes of finding answers. Thanks!

Answer 1

Absolutely not! Don't do it. Your big problem isn't financial, it's behavioral. Most of the answers you've gotten are from financial types that have logics about least amount of interest, etc, but they're missing the issue that refinancing won't fix your habits, and you'll probably fall under the false perception that your cards are now free for more charging once their balances are transfered.

Been there, done that, so believe me, it will happen.



Finish reading Ramsey, he's your answer.



Once of the respondants did suggest the debt snowball which is one step on the right track.



We're doing them now and they're working for us. So far we've paid $11,000+ in debt over the last 5 months, and put aside an emergency fund (and we're far from making big bucks)



Here are the steps:

Pre-steps

-get current on your debts - at least be paying minimums up to current month

-cut up all your credit cards (yes, all of them.)

-sit down with your family and explain that you don't want to live like this any more and that you want a better future for them. You guys are sinking and it will take a family effort to surface and eventually swim out of this mess. Once you've got their buy-in ...

-stop paying extra on any of debts, including extra mortgage payments (we were doing this one)

-do a simple budget to spend less and save more - we found we were spending Hundreds a month on going out to eat and see movies. Stop all that. Cook in. DVR movies on cable or get them from your library for free.

-stop contributing to retirement temporarily or any other savings or investment accounts. Yes, even if your companies match - it's just temporary, you'll get back to investing later.

-adjust your Withholdings through your employer to get more now and less tax return later. It's your money, may as well have it now.

-have a rummage sale, sell any extra cars, and get out of leases if at all possible - they're a scam.

Now - the real steps:

1. Put $1,000 into a savings or MM account as an emergency fund (EF).

2. Sort all your debts from smallest to largest. Pay minimum on all except the smallest. Attack that one with all the money you've scraped up (except for the EF) and your necessities (food, shelter, trasportation). Once you've paid the smallest, use what your were paying on the first plus the seconds minimum to attack that one. This is known as the debt snowball as it keeps increasing as you go. Keep it going until their all paid. Living frugally is key, during this period.

3. Now beef up your $1000 EF to 3-6 months of expenses (not income)

4. Resinstate future and retirement investing to at least 15% (match your companies IRA contribution, and put the rest of the 15% into Roth IRAs.)

5. Invest in college funds for the kids if you have them

6. Pay off the home early

7. Build more investment and retirement wealth and start giving what you can.



Hope this helped! Again, don't fall into the trap of using debt vehicles to get out of debt. Pay what you owe. Live on less than you make and you'll get out of this.



pbaez



If you need more ongoing support, join our yahoo group Dave Ramsey http://finance.groups.yahoo.com/group/Dave_Ramsey_Debt_Beaters/

Answer 2

The best thing you do is the 2nd mortgage. The interest is lower. Do not get into the debt consol agencies. I know people that their credit was ruined because of that. Their credit report said they were in debt consolidation on their accounts

Answer 3

If you have the time get a second job... have a yard sale...

Get rid of the credit cards.....

Answer 4

The big question is what did you buy with the credit cards?

Do you really want to take out a 2nd mortgage and be paying for year for a pair of pants or a dinner ?



I like Suze Orman she tells it like it is.

Answer 5

Please dont go for 2nd Mortgage. Its a death trap. Its always a bad idea to borrow money to repay old borrowed money.



I agree $50000 debt is not a small amount. Have u considered debt managemtn agency? always go for non profitable one, otherwise they will cream you.



Also, call up your credit agencies and ask them to work out a payment plan.



Go through: Ophrah's website- http://www2.oprah.com/money/debtdiet/money_debtdiet_main.jhtml



(The website is toooo good)



Hope this was helpful. For any further queries email me.

Answer 6

Actually both the answers here have very valid points. You're situation is pretty complex and you will want to make sure you make the right decision. You will have to take everything into account. Just remember that if you get a second mortgage you can end up owing more than the house is worth. If you get into a financial bind after that selling your house won't even help you. You will have to resort to running up your credit cards all over again. Either way I would cut the cards up until you have the balances under control or pay off the second mortgage. One method if you decide to just pay down the cards is to prioritize them with smallest balances with highest interest rates first. Pay the minimum on all of them but on number 1 pay as much as you can. Do this until it is paid off. Then take the money you were paying #1 with and apply it to #2 and pay the minimum on the rest and so on. This will give you a set budget for the cards to work with but also focuses on paying the cards that can get paid off the quickest or the most expensive in terms of interest first. Before you know it you will make a big dent in it. If you try it this way you will always have that 2nd mortagage to help you out of a jam.

Answer 7

You may end up paying more in the long run. It depends on the term of any 2nd mortgage or HELOC product you choose.

Your credit card is probably amorrtized for 10 years, so if you get a 2nd mortgage with a 20 year term you will be paying for 10 more years. So even if the rate is lower, the increase in term means you may end up paying more in the long run.

It's difficult to shoot from the hip on this question without all the info.

Whatever you do, don't use your credit cards anymore. If you get the loan and pay off your accounts your balance will be $0.00 and the temptation will be hard to resist.

Choose a reputable lender. Make sure you understand all the terms.

Answer 8

Most definitely. Credit card debts typically have VERY high interest rate (the lowest I've seen - take out the introductory 0% rate - is 12% per annum, or 1% per month). Compare this with 2nd mortgage that has a typical interest rate of 6% (depending on your credit rating), you'll get instant cash saving just by refinancing the credit card debt using a second mortgage.



The reason why credit card interest rates are so high is because the line of credit is UNSECURED, therefore the financial institutions / credit card providers have to charge a higher interest rate as a 'risk' premium (as the risk of credit card holders defaulting on the payment is higher and there is no asset of the cardholders that they hold as a guarantee / collateral that can be sold / recovered in the event of default). Mortgage, on the other hand, is secured over your house, therefore a lower interest rate is charged.



Provided that you never fell behind with your monthly minimum credit card payment, you shouldn't have any problem obtaining a second mortgage. Again the type of interest depends on your credit rating.