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We Are Living on Credit and Need to Refinance Our Mortgage. – Alison

“Dear Steve,

We have around $70,000 in credit card debt. My husband is self employed, and as the work has slowed, we’ve turned to credit cards more and more, you know how it goes.

Five years ago, we bought our house with a sub-prime mortgage, $40,000 down and a “liars loan” basically. It was a five year interest only loan, and we have to refinance in the next month or two.

We haven’t missed a mortgage payment, a car payment, but a couple of credit payments, always due to carelessness.

We don’t know how or where to look for refinancing. I’m afraid.

We have to refinance our home due to the type of mortgage we took out, but with serious credit card debt, what can we do?


Dear Alison,

I don’t want to paint a rosy picture for you here. There might be some unfortunate times ahead.

If you are living off credit cards, have some late payments, and an interest only mortgage you might need to face the difficulty that you will not be able to afford a regular amortized mortgage even if you could qualify for one.

Basically, as you rely more and more on the credit cards and the balances go up, your credit score goes down. The balances carried become a greater percentage of available credit and as your balances climb over 50% of the combined limits your credit score will suffer.

A not very attractive credit score, combined with restricted cash flow is going to leave you lucky to get financing at all in this environment. You see, your interest only loan payments are going to be much lower than the payments on a regular mortgage.

Your best bet for any sort of financing is going to be a local licensed mortgage broker that represents a number of lending sources. Check the web or your local telephone book for a local mortgage broker. Do it now.

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Please update me on your progress by posting updates here in the comments section of your question. I’m very interested in how this works out for you.


You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.

About the author

Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

1 Comment

  • Hi Alison,

    Maybe I can help, here is how I would go about it.

    Step 1 Sit down with your husband and create a realistic, no frills, budget to figure out exactly what it would cost you to keep all of your monthly obligations met, without using credit cards. If you’re showing a serious deficit, you will know something has to be cut.

    Step 2 Have an honest conversation about how important this home is to you. If you owe much more than the home is worth, a refinance won’t be possible until the value corrects itself anyway, even with perfect credit.

    Your mortgage payment is about to go up (to what it was always supposed to be), but paying only interest is continuing to go in the wrong direction, and eventually you need to start paying both principal & interest to get anywhere. If making a that payment is impossible based on your budget, it may be time to look into selling the home and hopefully there is still some of the $40k down payment left in equity. If you are able to walk away with something, you could use some of that cash to address the debt and you would probably be a good candidate for another mortgage fairly quickly.

    A loan modification may help a bit, but you would need to be behind at least one mortgage payment the entire time in review. Your credit score would suffer and loan modifications can be unpredictable, so in the end it may not equal out to much of a savings for the risk you would be taking.

    I think before you even begin to address your credit card debt, you will want to figure out whether or not it’s worth keeping the home, and more importantly, whether or not you can afford it.

    Step 3 Deal with the $70k credit card debt. How you deal with the debt will depend mostly on your income and what you decide to do with the property. Your credit raing will be damaged, if you go any route other than paying on time every month.

    If you are dead set on refinancing, it will be important that you keep making timely payments every month, on all of your accounts. This is the only way to maintain a good enough credit score so that you can refinance.

    It may also help if you look around to see if you can consolidate certain accounts on lower interest cards, to save some money there. Keep in mind though, an important factor with your credit score is the percentage of available credit that you are using. It wouldn’t help your credit score, to consolidate multiple accounts into one account and max it out, only to save a couple points in interest.

    Eventually you may be able to look into other options to address the credit card debt, but just about every option will damage your credit, and be counter productive with what you’re trying to do with the refinance.

    I truly hope the best for you and I’m sure you’ll find a solution. It will take making some drastic cuts on your end and will take some adjusting to living a different lifestyle than you may be used to, but it can and has been done.

    Good Luck.

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