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We Have a Bunch of Equity In Our House But Way Too Much Credit Card Debt. – Lisa

“Dear Steve,

three years ago we refinanced to a 30 year, 4.9 mortgage. we paid off all debt and embarked on a kitchen remodel. Halfway thru the remodel (at the absolute point of no return) I was laid off. I found another job seven months later, but in the meantime we had to power thru–scaling back to barebones the remodel–by using credit cards to pay to have the house livable again.

I earn approximately $80,000 a year. I have 27 years left on a 30 year loan at 4.9. The mortgage has about $250,000 left. I need to get rid of $65,000 in credit card debt that is ‘drowning’ us. Zillow sets our home value at approximately $340,000, but the reality is, our neighborhood would probably appraise higher.

Should we attempt to refinance–with a cash out– since rates are approximately 3.9? Home equity? Do nothing? Are there other options? We have no car payments or debts other than the cards.

Any suggestions or guidance would be greatly appreciated since this is unknown territory to us.

Thanks

Lisa”

Dear Lisa,

Your most logical options since it sounds like you need to get some payment relief would be to look at either a chapter 13 bankruptcy to restructure your credit card debt or look at a cash out refi, which will probably increase your rate, a home equity loan or an unsecured debt consolidation loan through LendingClub.com.

The LendingClub.com loan might be the highest interest rate but would not be secured with the house.

The home loan may turn out to be very costly with refinancing costs and overall interest rate increase.

My advice would be to explore both types of loan options and then come back and share what you discovered and let’s talk about this some more.

Please post your responses and follow-up messages to me on this in the comments section below.

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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.

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