My wife and I are considering refinancing our mortgage to pay off our credit card debt. The loan officer, who says he isn’t paid on commission, has presented us with some attractive numbers.
Current Debts:
- Credit Cards: $39k across 4 cards at 29.74% APR
- Mortgage: $237k balance at 3.375% APR (FHA)
- Vehicle Loan 1: $12k balance at 4.53% APR
- Vehicle Loan 2: $54k balance at 6.04% APR
Net Income: $157,437 annually.
The refinance offer is at 6.99% for $290k, with a monthly payment of $2,320. We’re being told that if we continue making the same payments we’re currently making on our credit cards, we could have the house paid off in 12.5 years.
My concern is that we have significant equity in our home—it would likely appraise in the low $400k range. I’m hesitant to give up that equity and more than double our mortgage interest rate. I think we could just tighten our budget and pay off the credit cards within three years.
I’m looking for advice on whether refinancing is a good idea and if it’s something worth considering.
The issue is that neither of you has any experience handling money. You have a $54,000 auto loan and 39k in credit card debt.That is completely crazy. Get a cheaper vehicle and get rid of the car. Use the extra cash you save each month to pay off your first car. Then, perhaps, you might roll it into one. I worry that you’ll wind up spending more money.
Since you would be refinancing a large portion of that debt at a higher rate than you are already paying, this doesn’t make much sense.
Debt is not a math problem; it is a behavior problem. Pay off the debt and buckle down with the budget. Avoid refinancing out of a 3.3% mortgage in order to purchase margin that you may otherwise lose.
Moving from unsecured to secured debt is something I dislike doing. if none of you two manages your expenditures. You agree to drive those cars for a very long period if you do this. You are taking a risk with your house if you replay the cards.
I completed it. owed $60K on credit card debt. Only owed $26K on my home so I refinanced just at $100K. Paid off all my debt and placed the rest in savings. We heard from everyone not to do it. Sell things, take up a second job, etc. Undoubtedly, it lifted a tremendous burden off our shoulders. We eventually sold the house, still turned a healthy profit, and are now debt-free and in our dream home.
It seems like there’s something missing here.
Your after-tax income is $157,437 per year, which comes out to around $13,100 per month.
What’s your monthly budget and where is all that money going?
I’d suggest holding off on the refinance for now and considering a 0% interest credit card instead, so you can put more towards the principal. You might also benefit from speaking to a financial planner who can help you manage your loans and spending. Something doesn’t add up, but it’s hard to pinpoint without knowing your monthly expenses.
To tackle at least one debt, you could allocate $2,000 a month to pay off the $12k vehicle loan in about six months.
Do you have an emergency fund that covers 3-6 months’ worth of expenses (mortgage, utilities, leisure, pet costs if any, car maintenance, etc.)?
Check out the non-profit in your area. Regarding the CC debt, they can assist you. They obtain nearly nothing in interest from the CC businesses after negotiating. Then you make a monthly payment that is already decided to them and they disperse it to the CC firms. They assist you develop a budget to make sure you can afford the payments. The caveat is that using a credit card while enrolled in the program will result in your expulsion. Family Means was the name of our local one. You may probably give them a call and ask them what the name of the one in your area is. Oh, and using them has no negative effects on your credit score, nor are there any costs. Fabulous program!
I’m not sure if refinancing is actually necessary because, after costs, you should have roughly $3k left over to apply to your debt. If anything switch the amount to a 0% Apr card if feasible pay the handful of 3% knock off the card in a year presuming your salary doesn’t go up at all and no bonus or anything get rid of the $54k auto loan if possible unless you truly need the car
First, pay down the lowest amount owed, such as the $12,000 you still owe on your car. Once that’s finished, add the amount you used to pay off the car to the next lowest payment. Continue until it is completely gone. Avoid taking out a larger loan merely to settle the balance. If you do that, it will ultimately cost more in the long term. And why do you owe a car loan of $59,000? Like, there are lots off great automobiles out there for less. This is the ideal moment to trade in your dog and receive a lower car payment. Just prior to an election is the ideal time to purchase a vehicle.
You’ll be back here in little more than a year if you don’t improve your money management. If you truly go down and budget, you should be able to find some margin to pay the credit card debt quite rapidly if you make 150k. Getting a Heloc is something I would do if I were you, but it still doesn’t address your spending problem. Simply shifts things around. Given that it’s a work vehicle and it’s not completely waterlogged, I would sell the $54,000 car. There’s no need for such a new and expensive truck when you can wipe off its worth in less than a year.