So, I am not sure if it’s just because my CU is being a bit of a Credit Union… NT. ……but, I’m trying to convert my higher interest CC debt into something lower interest, like a HELOC or a secured loan.
background: I have about 70K in CC debt, approx. 94% credit utilization (horrible, I know). I also am a home owner, with (currently), about 200K in equity in my home. I have about 18K in student loans, and about 5K in a previous debt consolidation with Upstart (NEVER AGAIN). My income is in the low 6 figures.
My mortgage is an FHA loan, 30 year fixed, with PMI, about 2.5% APY interest. Monthly payment is about $2250/mo, outstanding balance is about $365K.
I’m in an OK spot. kind of a PITA because about 40% of my take home pay is being put towards CC debt, and I’d like to move that over to any kind of debt where I can be under 15%. My average CC interest is around 20%.
What options do I have? I did go the CU route, they turned me down because apparently I have too much CC debt…..despite me telling them specifically that I was doing this to remove that revolving debt.
I’m ALMOST to the point where I might maybe, sorta, kinda, call one of the places that keep sending me junk mail.
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A heloc is most likely your only and best option at this point since approval is going to be more linked to your income than credit score. Hopefully you’ve been paying so your scores are at least somewhat manageable. Outside of a Heloc, rates will either be high or you just won’t get approved given your outstanding debts. Try for the Heloc.
Starting right now, completely stop using credit. Pay for everything with cash or with your ATM. If you don’t have cash, don’t buy it.
*Source*: This was my exact situation a few years back. I paid off my last card this year and it feels so good. If you are like me, getting a home equity loan might knock down your cc debt for now, but until you break the habit of using them, you’ll get right back into the same situation.
I’ll second the no more credit card use. If you consolidate your credit cards into a HELOC you are turning unsecured debt into secured debt. If all those cards go to zero and you rack up another 70k in cc debt you’ll be in line to lose the house. Certainly not the goal there but the risks become pretty real. I would evaluate what got you into this position with a magnifying glass and look at positive financial behavior changes. Hope this helps.
1st thing is, I am very sorry that you have gotten yourself into this predicament, bad debt is a noose, and unsecured CC debt is basically the worse.
Also, IMO you’re leaving out a few key details here, like….which state do you live in? Fyi, certain states, such as California, have debt laws which are a lot more favorable to the borrower than others. Florida for instance has some of the worst debt laws, for borrowers, which of course is a benefit to the debt holder though (issuer).
So a quick recap….
Home worth ~ $555,000 today….mortgage debt @ 2.5% w/ 30Y fixed rate on $365,000 balance….which means you own via equity ~ 35% of your house (give or take, depending on today’s actual appraisal value). So my first question is…why do you still have a PMI payment?
Mortgage Insurance typically is gone (removed) once you’ve satisfied the 20% ownership threshold, so it seems wrong that you’re still paying this. Please research, if possible, the fine print on your actual mortgage documents. It’s certainly possible that your mortgage is written with a PMI payment built in, regardless of how much you actually own, but that’s a bad mortgage contract IMO, gives all the power to the bank, and screwed you. You see, the bank no longer has to insure your house, because for instance, if you stopped paying back the mortgage, with a 65% loan-to-value, the bank (USA Gov’t) has your 35% equity that would cushion their debt repayments to the real investors who actually own your mortgage (some Wall Street hedge fund, most likely).
You say your salary is ~ $120,000 per year, or so. That’s fairly decent and maybe it’s even higher, since you didn’t specify I’ll assume this amount. Good on you for getting a low 2.5% mortgage rate.
The $18,000 in student debt, since it’s a federal government type of debt, you can’t really do much with, except to pay it down to $0, asap. Maybe you’ll get lucky and Congress will offer you a debt forgiveness.
The CC debt is the real problem obviously, as you’ve indicated.
You have $75,000 in unsecured credit debt, at ~ 20% rate, which of course is a variable rate and it could actually go higher at the whims of the issuing bank, that’s just mind boggling.
Here’s my advice, you need to look up the unsecured debt laws in your state. Do your research and truly get an understanding of these laws and how they can be used in your favor. Do what all the very wealthy people do.
Do Not, Under Any Circumstances, add any additional debt onto your current home mortgage, that’s just crazy talk. Do not co-mingle unsecured debt with your secured mortgage debt. A HELOC is not to be used for this type of activity. What happens when the roof leeks and you need to tap it for a new $40K roof, or a similar issue.
It’s really basic, if #1, you are planning to stay living in your house for the next five years or more, and if #2, your employment is pretty secure and/or you feel confident in your ability to keep getting paid in the low six figures.
I would simply stop paying 100% of these unsecured debt payments, Full Stop.
1st, the unsecured debt lender would actually settle for less than 20% of whatever is owed to them, probably even way less, like 5%. I wouldn’t even make another CC payment at all.
Think about it, how are you ever going to pay back $75K in debt at 20%. You won’t, as the CC interest rate is a killer. You want to add that amount onto your household mortgage debt, no way, think very hard about this.
Like I said, do your research on your state’s debt laws and use them to your advantage, just like nearly every wealthy person does, it’s really that easy, don’t over think this, and do not give yourself a larger mortgage debt.
Hopefully this is helpful and it gives you something to think long and hard about. It’s the best way to improve your current bad debt situation, IMO. Sorry to be so straightforward as well, but being a homeowner is great, so way to go with that, but don’t waste your good debt by adding on all the bad debts. Cheers and take care!
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