I’m exploring the best way to handle our debt. We considered a HELOC or HELOAN, but I’ve realized it’s risky to put our house at stake due to our spending issues. While we plan to improve our spending habits, I’m still uncomfortable with risking our home. I have around $11k in a 457b account and might be able to take out a loan against it. I’m waiting to hear back from my rep, but I’ve been told I could only borrow up to 50% of it. Would this be a good way to start tackling the debt? It could help pay off one of our credit cards with a $6k balance, and then we could focus on budgeting for the other 3-4 cards.
Examine your spending patterns and identify areas where you may save costs. You can use all of your extra money to pay off your debt more quickly. Rethink your phone bill, cut back on dining out, etc.
Put a stop to any frivolous and enjoyable spending. Please pay it off as soon as possible. I’ve found that the more suffering you endure while paying it off, the better you’ll feel afterward and the lesson you’ll learn. Simple fixes don’t make harmful habits go away.
Deciding if a HELOC (Home Equity Line of Credit) is a good idea depends on several factors: the interest rate on your credit cards, the interest rate on the HELOC, and any transaction costs for obtaining it. For example, if you have $10,000 in credit card debt at 20% interest, you’ll pay $2,000 in interest over a year. A HELOC with a 7% interest rate would cost $700 annually on the same amount. Additionally, you can deduct interest on a home loan but not on credit card debt.
While a HELOC does put your house at risk, practically speaking, it might be less risky than it seems. By converting unsecured debt into secured debt, you’re potentially exposing your home to foreclosure if you default, but the same risk applies to your first mortgage. If you take out an $11,000 HELOC and use $10,000 to pay off credit card debt, you’d pay about $450 a month over two years. In case of a major emergency, you could consider tapping into other funds like your 457b, but that should be a last resort.
10k isn’t much; all you need is a money manager to create a payback schedule and budget. that would be preferable to every other suggestion made.
Numerous tips exist for cutting costs, but they won’t last without a sensible budget.
You appear to be aware of your bad spending habits, so stop doing so and start allocating a larger percentage of your income to paying off that debt. There’s nothing worse than attempting to pay off debt and having to pay interest. Two $10,000 loans that I paid off in roughly six to seven months each. I didn’t enjoy having to pay off those loans, but as everyone knows, bad things do happen. Simply reorganise your money so that, without negatively affecting other areas of your life, the majority of your income is allocated to paying that off.
At the end of the day, $10,000 isn’t much. Just be sure you resolve to refrain from using your credit cards until you have control over how much you spend. I often narrate how, despite receiving a consolidation loan years prior, I continued to use my credit cards. They were eventually maxed out once more, and I had the loan. In 2020, I declared bankruptcy. And I’m sure a lot of other people have comparable tales, so take a lesson from ours!
First, this isn’t as dire as it seems and can definitely be managed. Start by cutting out dining out and shredding most of your credit cards, keeping only one with a good balance for emergencies. Consider giving that card to a trusted person, like a parent, with clear instructions. If you can pay $1,000 a month, you’ll be debt-free in about a year. Reduce all unnecessary expenses and manage your money responsibly. I faced a similar, if not worse, situation during grad school and accumulated credit card debt, partly for a home remodel. When I graduated and sold the house, I cleared $75k from the remodel, used $40k to pay off the debt, and haven’t owed money since. Once you get past this, remember how you felt now; that memory will help you avoid falling into debt again.