Refinance to consolidate debt?

[36Rock]

Is it a good idea to refinance your home to consolidate debt? We have 60 thousand in equity and 15 thousand in credit card debts. We helped out an adult son the last 5 years. He is paying back $100 per month but this will take forever. I've been trying to pay 4 to 5 hundred every month but the extra is killing us.

Refinancing would lower that down to a managable $60 extra on our house payment (15 yrs) , plus I show if I pay an additonal $100 the home would be paid in 12 years. Currently we owe 11 years.

So would this be the best way to go or should we just suck it up and pay the 400 for the next 4 years? I'm working 2 extra part time jobs to pay this now.

What to do guys think I should do?

D

[34saving]

Well, before I even try a response on this one, a few questions:
1) Are you refinancing or pulling a Heloc?
2) What kind of fees are you likely to incur in the refinance?
3) Is the refinance fixed or variable rate?
4) What is your current rate and the refi. rate?
5) Is there any chance you're going to be moving anytime soon?
6) Is your equity because of what you've paid or because of how much your house has appreciated?

[36Rock]

1) We are thinking of refinancing, I don't know what a Heloc is?
2) The fees are going to be $2,000 to $2,400.
3) The rate is fixed, looks like we will get 5.0 to 5.25 (we have excellent credit)
4) Our current rate is 6.5
5) No, don't plan on moving for a very long time.
6) It's both, about $25 thou is paid, $35 thou in appreciated value.

I just hate rolling this debt on to our home, but I also know I can't work these extra jobs for serveral years. Plus with all our extra money going to this debt I worry about having funds for other things that may come up. Just want to make the best decision possible for the long run.

I welcome the comments, D

[cicy33]

I personally think that one thing to really consider is if you are paying higher interest on the credit card, consolidating might be the best option. I recently told my boss that if we were going to take part of the company savings to pay off a credit card the only way that it would work was if we cut it up. then you cannot remax it! Especially if you are able to make higher payments than the loan would become.

[34saving]

A Heloc is a home equity line of credit . . .better because they gennerally don't have any fees, worse because they're variable. I'm horribly conservative when it comes to this kind of thing, but in this case the refi. is looking really good. Your fees would be made-up in less than 2 years (depending on the amount of the loan-- bigger = faster . . .I guess I should have asked about that too) just on the change in interest rate. Allowing you to also not pay the 10 or whatever per cent you're paying on your credit cards is just an added bonus. A few hints: 1) Don't take the max on the refi. Take what you need and maybe a little bit for an emergency fund. You don't want to end up inside out if for some reason you have to sell. 2) Don't change your spending habits to match your new feeling of wealth. (Lots of people give up lots of equity in their homes to get basically nothing because they change their lifestyle to a more expensive one.) 3) Make sure your new loan allows you to pay early and do it! 4) Make sure the new loans doesn't force you into a weird position like having to pay PMI.

[36Rock]

No, not getting a home equity line of credit. I feel that is just to dangerous of a game to play with my home. My loan would be not more than $80,000, I owe $58,500 now. Don't plan to get anymore than the 15 thou for the debt and pay the fees. So no PMI.

I have 7.9% on 4 thousand, 0% on the 11 thousand till it's paid (yes, our credit is that good).

We are very furgal people, have never been in debt before. Pay on our home, 1 car (other car always paid for). We purchase everything else cash. Don't plan to change spending habits. Plan to work the extra 2 jobs for a year to pay for remodeling the kitchen. New loan allows for us to pay early, plan to pay $100 extra so the note will be paid in full in 12 years. I pay extra on my current home note already.

Since I have zero interest on the 11 grand should I not refinance? It's just that I don't want to work like this for years.

[34saving]

Wow! What a little tiny mortgage you have! I'm impressed The refi. still makes sense if you're planning on staying more than 4 years (which it sounds like you are.) 0% interest on your credit card is hard to pass up, but if you're going crazy working so much that counts for something too. (Of course you could take the extra payment you're paying on your house and apply it to the credit card with the $4000 balance? Would that allow you to work a bit less?)

[terry1156]

The big question is how did you accumulate the debt in the first place. Was it solely from you son, or was it also partially due to your spending habits? if the reason the debt came to be in the first place isn't addressed, you'll end up with less equity in your house and the same debt on credit cards a year from now, so that should be the first order of business.

if the debt was a one time occurance or something that has now been taken care of, then refinancing looks like a decent alternative, expecially if you can lock in a rate lower than you're currently paying.

I would shop around and see if you can get most of the refinance fees waived. Competition is still strang in this area and you can leverage that to your advantage is asking for reduced fees.

[jmjj215]

Before I give an opinion, I'd want to know how much you make and see a posting of your budget - that'd tell me if you were really busting it and wouldn't hurt yourself by dumping unsecured debt onto your home. At first glance though, I wouldn't refi.

[36Rock]

Yep, all but $1000.00 is from our son. We co-signed for a car, he was re-ended by a truck (which was stolen) guys got out and ran. Truck had no insurance, then.... we found out he hadn't been paying his insurance either. So car was totaled, he couldn't offord to pay the note and we didn't want our credit ruined. So we fixed the honda (rear clip) and then sold it for $4000. Put that on the note and rolled the rest over to the cards for lower interest.

We have been married for 22 years, never had this kind of debt ever. We pay cash, the only reason $1000.00 is ours at the moment is because we used the credit card for a rent car, airline tickets to CA to help mother in-law move to a retirement home (had to go). Shipped family items homes etc. We always paid our cards off within a month or two.

We make $62,000 a year between the two of us, I make an addition 5000 with 2 extra jobs. Both putting 15% into our 401K's. I don't want to roll over any debt onto my house, that is why I'm having such a hard time making a desision, but working all the time is killing me. That would give me my life back.

Believe me this is killing me, I just don't think I can work like this another 4 years. If we refinance it would mean paying an extra 140 per month visus the $500 I pay now. Plus my son pays $100 so that would be $40 to us. Since I pay extra on my mortage anyway this actually means zero to us. Big pay off would be that I can quit my 2 extra jobs.

Also I just hate been so strap financial because of something we didn't do.

Thanks for letting rant about this.....

[Snoopy2645]

I am usually not for refinancing. I believe one should switch to 0% but like the others have stated if you cut up the cards & change all habbits including helping your son out by not giving him money then I would refinance it sounds like it would be a good deal for you.

I am not saying dont help your son either I just mean dont give him money maybe help him in other ways if you can.

[Tree0164]

I wouldn't refinance the credit cards into to the mortgage too risky. You are simply moving your debt around.

1) Look at your budget. Anything that you can cut.
2) Get a second job. Ask your son to get a second or a third job to help pay this down. While I know you want to help, it really doesn't help him in the long run if Mom and Dad are giving hand outs.
3) Read Dave Ramsey-he is an inspiration. Go the library and reading Financial Peace and Total Money Makeover.
4) Follow the snowball method.
5) Contribute your 401k to your company match and take the extra and put that towards your credit card debt.

Good luck!

[36Rock]

Wow, interesting comments...

1) I've already stop helping the son out, the only thing we did was help him get a car anyway. Plus he has a second job, that's why he is able to pay $100 to us every month. We don't give him money, no hand outs. He is truely sorry for his bad judgement, but he doesn't have the earning power to pay more towards this debt.

2) I have 2 second jobs already (read prior post)

3) I'm paying min $500 per month on the debt, have cut down to the bone, it's tuff and the extra jobs are killing me. I'v been doing them for a year now, plus take on little extra part-time jobs on top of that (my husband and I do a small balloon business together)

4) We put 15% into our 401K's, don't think changing that would be a good idea, my husband is to close to retirement. Plus taking from our retirement to pay this debt is worse then rolling it on to our house.

5) I will go and check out the Total Money Makeover by Dave Ramsey as suggested this weekend, because I don't want to leave any stone un-turned.

6) Since we have never over charged and had debt before in our marriage (22 years), I know that if we refinance and pay it off we won't get back into debt. Wasn't our style before won't be our style now! I just want my life back, working all the time is wearing me thin, can't imagine doing it for several more years.

Well thanks to everyone for your comments.

[terry1156]

It sounds to me that you have pretty much already made up your mind and are looking for confirmation that doing this is not the wrong thing to do (my apologies if I am misunderstanding).

If you are going to refinance, like I mentioned before, take the time to compare and haggle a bit - it can save you a lot of money in the long run.

I would also keep the extra jobs as long as possible. I know that you said 4 years is just too long, but if you can do it an extra year or even six months and put the money agains the loan, you'll make a huge dent and pay a lot less over time. Then again, life is not to be miserable so you don't want to keep at it if you aren't getting some enjoyment out of it.

Keep us up to date on what you decide and how all progresses.

[jmjj215]

I'd really like to see your budget. 1) You're really tired and could use a break, so getting out from under this is very important. 2) You're making $62k plus maybe 5k w/ extra jobs. You have debt of 15k plus a mortgage. Why not stop paying extra on the mortgage to put toward this debt? Also, I think you could cut your lifestyle a bit (of course, we haven't seen your budget yet) and pay off that 11k in a year. You're making 50% more than the avg household.

I just hate to see you do this refi - it's scary to me. What if some other emergency happens? All of a sudden your home is at risk.

[36Rock]

We really haven't made of our minds yet, I'm having a hard time with this. We have been so careful with our finances through the years. I've been tracking every penny on Quicken for almost fifteen years now. I think I'm just tired, I write the checks every month to this debt and feel like I'm working for nothing. We have put our lives on hold, was in the middle of remodeling a bathroom and stopped, need a new fence and haven't replaced it yet. We don't spent any extra, just pay on the debt. Before we paid everything as we went, new fence no problem, we would just put aside the money for a couple of month and get it. We paid cash for everything so being in debt for $15,000 is just overwhelming after years of being careful.

I do plan to work the extra 2 jobs for at least another year either way. I worry that interest rate will go up and if I refinance then I start over from their with a 15 year note. Even if I pay extra as planned to make it a 12 year actually that would make use paying 13 years from now.

See I analyis every detail, it's driving me crazy!

[jmjj215]

36Rock - let us see your budget. I still think you could get out of debt pretty quick making 62k+ on 15k of debt.

[36Rock]

Do you really think I could pay off 11K in a year? In what format do you want to see my budget, how details? I have it all!

[jmjj215]

Take-Home Pay: $$$

Spending
Category: $Monthly Amount
Category: $Monthly Amount

You'll be amazed at what you find when you scream it on the rooftop (ahem, in this forum).

[36Rock]

Bring home pay $3,100.00 + $400.00

House payment 1,132.00 (without the extra $50.00 I paid) this included taxes & insurance.
Car payment $532.00
Car Insurance $120.00 (2 cars)
Life Insurance $75.00
Water $95.00
Gas $35.00 (at the moment)
Electric $250.00 (I live in Texas, it's hot here)
Phone $110.00 (this includes DSL Line, I work from home for my full time job over the internet, have to have this)
Internet Service Provider $18.00
Cell Phones (2) $59.00
Meds $60.00 (1 for me, 1 for him)
Health Club $32.00 (yes, I do use it, I have high blood pressure, it's either be on $30 a meds or control it through diet and excerise... I choose the diet and excerise way)
Debt payment $500.00
Rest goes to food, gas, clothes etc.

Ok, here it is....... Let me know what else to do, I know I could turn off the cable, I'm in a two year contract for cell phones, I keep them for emergency, plus when I'm at my other jobs I can call forward the home phone to them, then my home job can still talk to me. I think that's all.

Thanks for the help!