| by Mr Credit Card |
I had the great pleasure in interviewing Mrs Accountability or Mrs A from www.outofdebtagain.com. Mrs A is an extremely frugal person. She has divorced her husband, remarried him, takes care of a special needs child. She has gotten into credit card debt twice and is in the process of trying to get rid of her credit card debt for the second time. She has used a non-profit debt consolidation firm, used balance transfer credit cards to reduce her interest payments and even had her score up to the 800s at one stage in her life. She also explains in this show how she got her husband Mr A to build his credit history with a secured credit card.
I think you will learn a lot from listening to her. So sit back and enjoy the show.
|
|
November 24th, 2009 at 14:40
One word of caution about using your mortgage to refinance your credit card debt. By doing so, you are converting unsecured debt into secured debt. And you are securing that debt with your house.
Yes, you do get the benefits mentioned (being able to deduct the additional interest, having a lower interest rate). But in exchange, you have increased the debt tied to your house, and therefore also your monthly mortgage payment.
If something bad happens that impacts inbound cash flow, you could end up losing your home.
Whereas if you left those debts separate, and something bad happened but you still had enough cash coming in to make your mortgage payments, you have other options that don’t involve losing your home.
With a budget as tight as the one Mrs. Accountability was discussing, let alone combined with what sounded like uncertain and highly variable income, this is something they need to seriously and carefully look into before committing to this course of action.
November 24th, 2009 at 14:50
Oh, and one more important thing I forgot to point out. The reason the refinanced amount has a lower monthly payment is not just because of the lower interest rate, but also because of the longer amortization period.
The refinanced debt will be paid off over the course of 15 years, rather than the 8, or 10, or whatever the amount calculated based on the credit card minimum monthly payments.
Granted, the total interest paid will still probably be lower due to the higher credit card interest rates. But it will still be taking longer to pay off, and they will theoretically be paying more interest than they otherwise “should”. (For instance, continuing to pay principal and interest for 15 years on a tool that broke after 10 years of use.)