Refi or HEL ?

[jevb]

I have about $30K in credit card debt that I want to pay off with my home's equity. Plus I want about $10K in cash to pay for son's college.

Current mortgage balance: $161K
Current home value: $350K

I'm thinking about either getting a HEL for about $40K, or doing a refi for $200K.

What are your thoughts or suggestions?

[terry1156]

Some questions:

What is your current mortgage rate?

What rate could you refinance at?

What rare would the HELOC be at?

Have you solved the problem that caused the $30K to get on your credit cards in the first place?

[34saving]

Everything Terry asked + what are the expected closing costs for the refi. and the HELOC?

[jevb]

What is your current mortgage rate? 6%

What rate could you refinance at? 5.85%

What rare would the HELOC be at? 7.25% for 20 years

Originally Posted by terry1156

Have you solved the problem that caused the $30K to get on your credit cards in the first place?

Please don't preach at me. I already feel bad enough about it, that's why I'm doing this, to try to fix the problem by increasing my monthly cash flow.

Even though the HEL or HELOC has a higher interest rate, the terms are shorter, which is more comfortable to me.

[jevb]

Originally Posted by 34saving

Everything Terry asked + what are the expected closing costs for the refi. and the HELOC?

I'm not sure. I guess that's something I need to check into. But, if I remember right, the closing costs on the HEL/HELOC are zero.

[terry1156]

Originally Posted by jevb

Please don't preach at me. I already feel bad enough about it, that's why I'm doing this, to try to fix the problem by increasing my monthly cash flow.

Please forgive me if you felt I was preaching in any way. That was not my intention at all. It's just that from my experience with friends and family(including myself), if you don't put in a place a budget that works that solves the problem of why you got into debt in the first place before you refinance, you'll find yourself with the same amount of credit card debt 6 months later with less equity in your house. Therefore my advice would be until you have a plan/budget where you aren't putting any money on credit cards each month, you should avoid the refinancing. That way when you do refinance or HELOC, you really will be helping yourself get out of debt and not placing up a stop-gap measure that will lead to more debt.

Another important question is how long do yuo plan to stay in your current house? If you are planning a move, it might be better to hold off. If not for the foreseeable future, the refinance look more attractive.

[liveandchi]

Oh, get everything in order before you refinance! We refinanced twice to get "a better cash flow" and ended up maxing out our credit cards again in less than a year both times. Just read my other posts to see what a mess we're in.

[jevb]

Originally Posted by terry1156

Please forgive me if you felt I was preaching in any way. That was not my intention at all.

No problem. I understand where you are coming from, and I know you were well intentioned. I'm just a little sensitive because I do feel wretched about this. But this thread is my way of "coming out" about it and seeking help.

Okay, I guess it's time to "undress". I'm 56, and I've have raised seven children on one low income. My wife is a great wife and mother, but she's just never been a money earner. I have been able all these years to keep the bills paid. I have a very good credit rating. Never been late on a mortgage payment or a credit card payment. I have always been able to keep us just barely above water.

But, here's the kicker. Every time there has been a large expense, i.e.: eyeglasses, dental bills, tires for the car, washing machine, etc., etc. there never was enough savings to pay cash. I never had enough free cash after the kids were fed and clothed, to put any into savings. So, the $30K in credit card debt is from all of those large expenses all these years. I do not, and never have, used credit cards for miscellaneous purchases.

So, that is why I now want to reduce monthly outgo, so I can build up a savings account for large expenses. Without less monthly outgo, I can't build up a savings account, and therefore the debt will continue.

Like I said, I already feel pretty bad about the situation. But I do have seven children to show for it.

So, considering my age, a refi isn't very appealing. I reckon I'll stay in this house about another 10 to 15 years, and then sell out and buy a retirement home.

I bought this home in January 2004, and I'm paying a half-months payment every two weeks. So I'm accelerating the amortization pretty good.

So, maybe I'm not thinking right here, but the most important thing to me is to reduce my monthly outgo as much as I can, so that I'll have as much as possible to put into savings.

I still have my two youngest sons, 19 & 17, at home. The 19 year old does have a part time job and he pays for his own car insurance. I would like to have some cash to put them through community college. That's why I thought if I could get a HEL/HELOC for about $40K, I could pay off the credit cards, put $10K into a MM acount for college expenses, and have more cash flow for savings.


So, what do you all think ?

Originally Posted by terry1156

It's just that from my experience with friends and family(including myself), if you don't put in a place a budget that works that solves the problem of why you got into debt in the first place before you refinance, you'll find yourself with the same amount of credit card debt 6 months later with less equity in your house. Therefore my advice would be until you have a plan/budget where you aren't putting any money on credit cards each month, you should avoid the refinancing. That way when you do refinance or HELOC, you really will be helping yourself get out of debt and not placing up a stop-gap measure that will lead to more debt.

I understand, and I do appreciate your concern.

[jevb]

Originally Posted by liveandchi

Oh, get everything in order before you refinance!

I'm "all ears", please explain what you mean.

Originally Posted by liveandchi

We refinanced twice to get "a better cash flow" and ended up maxing out our credit cards again in less than a year both times. Just read my other posts to see what a mess we're in.

I'm not here to judge, just wondering, couldn't you cut up those cards and close those accounts after you had better cash flow???

[liveandchi]

Originally Posted by jevb

I'm not here to judge, just wondering, couldn't you cut up those cards and close those accounts after you had better cash flow???

Yes, probably, but we didn't. Once we had paid off the debt, we continued to live like we had always done which meant putting things we "needed" on credit. If I had to do it all over again, I would have cut up all the credit cards, but we didn't. So the balances on the credit cards started to build again until the cards were maxed out. We never sat down to figure out how to live without the credit cards and now we're paying the price.

[terry1156]

Originally Posted by jevb

No problem. I understand where you are coming from, and I know you were well intentioned. I'm just a little sensitive because I do feel wretched about this. But this thread is my way of "coming out" about it and seeking help.

I understand and I've been in a similar position in the past. I know that the subject can be very sensitive and I do commend you for having the courage and strength to "come out" to find the best plan for you.

From your situation, it seems that the most important thing will be to build you an emergency fund so that when those unexpected big expenses do arrive, you don't have to bring out your credit card again.

It might help if you spell out your current budget and spending. Again, this is not to judge, but to give ideas where maybe a few dollars can be saved and put toward the savings you want to build. It may also show some areas where you are spending money that you haven't accounted for (that was my problem. I thought I had a budget, but I had little leaks here and there that I didn't account for that made my budget worthless until I faced up to them and added them into it).

Without seeing you current expenses ther are two areas that I can see that can help you build the emergency fund. One is that your current credit card payment will disappear so whatever you are paying to that can go into savings. how much would this be per month? The other may be your house payment. Are you making a payment twice a month or a payment every two weeks? If you are making it every two weeks (and therefore an extra payment a year), this money should go to your emergency fund. Once the fund is built up, then you can go back to paying off the mortgage faster.

If you are planning on staying in the home for another 10 to 15 years, I would look at refinancing over the HELOC, but for the same term or a bit shorter than you currently have if you can find a loan with low to no points.

[jmjj215]

I've been watching this thread and agree with Terry's advice. If you do end up with heloc, and after you've gotten your emergency fund in place (to avoid the debt you mentioned above), you should pay down that heloc before paying any extra toward the house.

Also, I really think you should post a detailed budget here that we can dig into - you'll be surprised at the help and insight you receive. Two heads are better than one. And thirty are better than two.

[34saving]

Just a surface approach says refi. to me. Be careful to get a good deal though. Watch the closing costs and shop around. Take out only what you need, but be sure to get a good emergency fund. Don't be tempted to "take out a little extra" to go to Disneyland like soo many are! I wouldn't pick the HELOC over the refi. because of the length of the loan. If you're disciplined you can pay off the refi. even faster since the interest rate is lower. Discipline is, of course, the key, but it seems like you know that already. Let go of the guilt and make the best possible decisions you can right here, right now.

[jevb]

Originally Posted by jmjj215

I've been watching this thread and agree with Terry's advice. If you do end up with heloc, and after you've gotten your emergency fund in place (to avoid the debt you mentioned above), you should pay down that heloc before paying any extra toward the house.

My mortgage payments are controlled by the mortgagor. They automatically deduct a 1/2 month payment every two weeks, to coincide with my paycheck. Of course, I could change that if I wanted/needed to.

Originally Posted by jmjj215

Also, I really think you should post a detailed budget here that we can dig into - you'll be surprised at the help and insight you receive. Two heads are better than one. And thirty are better than two.

As you have probably already guessed, I don't have a budget on paper. I have tried to budget all of my life and just can't get used to it. It's not that I'm against budgeting, I'm not, I just have never been able to "make it work". I'd be more than grateful if someone could teach me how to budget. What I will do is list all of my monthly expenses and post that here in a day or two. That's probably a good start, huh?

[jevb]

Originally Posted by 34saving

Just a surface approach says refi. to me. Be careful to get a good deal though. Watch the closing costs and shop around. Take out only what you need, but be sure to get a good emergency fund. Don't be tempted to "take out a little extra" to go to Disneyland like soo many are! I wouldn't pick the HELOC over the refi. because of the length of the loan. If you're disciplined you can pay off the refi. even faster since the interest rate is lower. Discipline is, of course, the key, but it seems like you know that already. Let go of the guilt and make the best possible decisions you can right here, right now.

That's the feeling I'm getting from all of this too. I think a refi is the best for me right now. Reason #1) that would reduce my monthly outgo the most. #2) that would give me more monthly cash for a savings account, #3) all of the credit card debt would be gone (well, rolled over into the mortgage), #4) the interest rate is lower, #5) once the emergency fund is established I can accelerate the mortgage payments, #6) there's gotta be another good reason

What would you consider a good emergency fund? $5K, $10K, or what?

Yes, I understand that discipline is key for success.

I'm starting to get a good feeling about this plan. Does everybody agree with this plan?

I know, I need to budget.

[pennywise]

This is what I have to say: why are you taking unsecured debt and transferring it to secured debt. I may have been better for you to file bankruptcy before the laws changed, now maybe chpt 7. It is not wise to move debt that cannot be recovered to your house which can be taken. So do not remortgage. Better to contact the finance companies and get the rates lowered so you can pay off. Next, the wife should go to work to help. Marriage is a partnership and a business, if you don't think so, look at your taxes. Increased income will help pay for the debt. Set a family goal. Educate the family on income and ouput. I tell my family, this is the rule, don't like it move out. Spouse included. We have goals and one person will not disrupt the plan due to laziness, ignorance, or any other reason. Refinancing at your age will never get you unslaved. Not to mention the children. Why didn't they get jobs to help out?

[pennywise]

Sorry I was disrupted by my neighbor at the door. Financial discipline is not easy and that is why not many are millionaires. I do think you need to establish a budget. What I keep hearing you say over and over is you are looking for a quick way to get out of the situation you are in. The two children can certainly take on jobs to help pay for community college. If you expect it from them, they will deliver. The goals and budget need a family meeting. Asking each member what can they do to help. Again, a stay at home wife in today's society is not justifiable (I am currently fighting to pass rules to stop financial aid when one spouse is "stay at home" - this is unfair to those who work to pay for their needs and wants). Again, and it has been said: get the budget. Someone asked you to post it so we can dissect it and offer help. Do you need cable tv. what else is going on at your house that you feel you have to shoulder this burden all yourself while the family lives in comfort. I tell my husband: DTR and I sacrifice all day, no TV or AC so when you come home you will sacrifice too. If you were unmotivated to climb the corporate ladder that is your problem so don't come home and think you deserve special priveldges while we go without, budget, and save. I know you don't want a lecture, but you are looking for someone to give you the green light to make a financial mistake. I won't do that and that is why I have >3500000 NET worth. I don't buy excuses. So please, make the budget, post it, get us to help, get the family to help and then YOU WILL feel better because it is not all on you, you will move toward UNSLAVERY (debt makes you a slave). Ben again said "beware of little expenses - a samll leak will sink a great ship".

[jmjj215]

Again, a stay at home wife in today's society is not justifiable

Elaborate on that please. My wife is a SAHM - do I need to justify that to you?

and that is why I have >3500000 NET worth

You're probably assuming too much since he hasn't yet posted his budget or more financial details. You don't even know how much he makes yet! And why the heck are you not using an AC if you have that much money?

[jevb]

Originally Posted by pennywise

Sorry I was disrupted by my neighbor at the door. Financial discipline is not easy and that is why not many are millionaires. I do think you need to establish a budget.

I already admitted that I will work on it.

Originally Posted by pennywise

What I keep hearing you say over and over is you are looking for a quick way to get out of the situation you are in.

No, I never said that. I'm looking for the best avenue to fix my problem. I am admitting I have a financial problem.

Originally Posted by pennywise

The two children can certainly take on jobs to help pay for community college. If you expect it from them, they will deliver.

I already said, the older one has a job, and, the youger one just graduated from HS and is seeking a job.

Originally Posted by pennywise

The goals and budget need a family meeting. Asking each member what can they do to help.

I agree.

Originally Posted by pennywise

Again, a stay at home wife in today's society is not justifiable (I am currently fighting to pass rules to stop financial aid when one spouse is "stay at home" - this is unfair to those who work to pay for their needs and wants).

In some cases I can agree with you on this, but not all. My wife provides benefits at home that never could be realized if she worked *outside* the home.

Originally Posted by pennywise

Again, and it has been said: get the budget. Someone asked you to post it so we can dissect it and offer help. Do you need cable tv. what else is going on at your house that you feel you have to shoulder this burden all yourself while the family lives in comfort. I tell my husband: DTR and I sacrifice all day, no TV or AC so when you come home you will sacrifice too. If you were unmotivated to climb the corporate ladder that is your problem so don't come home and think you deserve special priveldges while we go without, budget, and save. I know you don't want a lecture, but you are looking for someone to give you the green light to make a financial mistake. I won't do that and that is why I have >3500000 NET worth. I don't buy excuses. So please, make the budget, post it, get us to help, get the family to help and then YOU WILL feel better because it is not all on you, you will move toward UNSLAVERY (debt makes you a slave). Ben again said "beware of little expenses - a samll leak will sink a great ship".

I commend you for your net worth, and I'm sure a budget might reveal areas my family could cut back, but please don't make me think I *have* to do things your way.

If I don't get more cash flow NOW, *my* problem *will* continue. I think I understand now that *my* problem all these years has been twofold: 1) not budgeting, 2) not saving. Sounds simple, but it's not always obvious to those of us that were never taught financial responsibility. I am not ooking for a quick fix, I know that doesn't exist. I am looking for a solution that will prevent more debt from accumulating. If I don't get more cash flow NOW, the tires will wear out before I can save enough money to pay cash.

[pennywise]

That is the question to him. What is the budget. He is not addressing that question, he wants approval from us to refi and make another financial mistake. We are waiting for the budget to give our opinions. A SAHM does not qualify you for financial assistance for college or anything else because that woman could get a job just like all the rest of us and actually pay for what might be gotten at a discount. In the 50"s the stay at home mom was the thing, however, today that woman could work. Does that elaborate it enough for you. It is not fair to have me work, pay full price, and a SAHM gets a discount because she does not want to stress, well, I have stressed, so she can too and stop looking at me to fund her needs for her children. having children is a choice and has been for a long time, you have to be able to afford your children. Historically, families with large numbers of children have always been impoverished. Secondly, I guess that is why I have >350,000 Net worth and you don't. No AC is required until the temp reaches a certain temp or the humidity reaches a certain level. Do not tell me how to spend my money. That is why I have it, you will not sacrifice, be hot, inconvenienced, but yet some will sure complain and then want what I have. Our childrens tales say alot, may I suggest you read them: One is the hen asks who want to plant the wheat with me, not i not I, so she plants it alone, who wants to help me water, not i not i, so she waters, who wants to help me weed, not i not i, who want to help me harvest, not i not i, who will help me bake the bread, not i not i, who wants to eat the bread I DO I DO. Sorry, guys and gals, I don't buy it. Having money, being frugal, and disciplined will get you what I have (now let me really get you: assets over liabilities hit 500,000 this month with the mortgage payment). I have what I have because I will do laundry by hand, rinse my body with cool water instead of run an AC, save, invest, shop interest rates, invest myself so I don't have to pay fees. Best to read the millionaire next door and then research "Ben Franklin AND money on the internet".