fbpx
22121 Canyon Crest Dr Mission Viejo, CA 92692 +1 949-632-4347

Using your home’s equity to pay off credit card debt is a dumb move

Using your home's equity to pay off credit card debt is a dumb move

Your house isn’t a piggy bank, so don’t use your home equity to pay off credit card debts.

Dear Liz: My ex-husband is a self-employed carpenter who just turned 64. He’s gotten a bit over his head with his credit cards. He tried for a home equity loan since he has plenty of equity and high credit scores. His mortgage lender says he doesn’t make enough money and that he needs a co-signer.

He owes only $50,000 on the house and needs about $40,000 to pay off his bills. Why should he be punished for working hard all these years? This is crazy and stupid. Is a reverse mortgage the way to go for him?

Answer: Possibly, but it’s concerning that he has so much credit card debt. Too often people who tap their home equity to pay off debt wind up worse off in a few years. They don’t fix the problem that caused the debt in the first place, so they continue to overspend — but now they have less of a home equity cushion to fall back on in case of emergency.

That’s especially true with a reverse mortgage. These loans allow people 62 and over to borrow against their home equity without having to make payments or repay the loan until they sell, move out or die. However, any amount they borrow and don’t repay will grow over time, typically at a variable interest rate. People who use reverse mortgages to pay off debt early in retirement can wind up unable to access their equity later, when they may need it more.

 

Related articles

Is your documentation house in order?

Is your documentation house in order?

For specific situations that are on our day list or in progress, most of us get the needed documentation together, distribute it where required, acquire it where entitled and move on. But, when it comes to documentation we should have ready, in advance, for when it’s needed some time in […]

Learn More
Architect skips mortgage payments with ‘Tiny House’

Architect skips mortgage payments with ‘Tiny House’

Ah yes, mortgage payments. Can’t live with ’em, can’t live without ’em. As it turns out architects like Macy Miller are an exception. The Idaho-based designer, longed for a place of her own free from the burden of mortgage payments and huge expenses. Her solution is the ‘Tiny House.’ The […]

Learn More
10 Things Every Parent Needs To Know About Their Mortgage

10 Things Every Parent Needs To Know About Their Mortgage

For a lot of first-time homebuyers, getting a mortgage can turn into a baptism by fire. Often, you don’t know how complicated the process is until you’re in the thick of it. The truth is, financing your home doesn’t have to be a maddening experience. The better you understan how […]

Learn More

Leave a Reply

Your email address will not be published. Required fields are marked *