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MaknMeCrzy | Is This a Good Idea? |
Is it wise to use part of a home equity loan to pay off part of a spouse's debt? Wouldn't this help the couple as a whole, even though one may have incurred the debt??
Additional Details
PLEASE!!! NO IMMATURE RESPONSES!!! |
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You have to look at it from the big picture. If you are borrowing money, how much it is going to cost you?
Mortgage debt is between 6% and 7%, but home equity can be more costly, depending on how much equity you have in the home, and your currect credit score.
First, home equity lines of credit, or loans are often variable rate loans, based on the prime rate. A common rate right now might be 9.5%. But, since it is variable rate, and interests rates have historically been low (and are at the low end right now) and are rising, this could be really bad new. Maybe 10.5% in a year, and 12.5% in two years, who knows. The max rate is usually something like 24% by law.
Your school loans are usually very low, like 4% or 5%, and so, a much better deal. You usually would have a hard time getting a better deal. They are lower rates because the government guarantees them. That's because you can't declare bankruptcy on educational loans, and the IRS will take it out from you if you don't pay.
Credit card debt can sometimes be high if you do not have good credit. It is the first thing anyone should try to pay off. But, paying someone money to borrow your own money to pay off credit card debt is really a bad idea (home equity loan).
Let's look at a hypothetical scanario.
You borrow $20,000 on your 300,000 house that has 200,000 remaining to pay off.
Your monthly payment would be $160, at 9.49%, which works out to be total payments of $60,496.00, of which $20,000 is the amount you borrowed, and $40,496 is interest.
Do you really want to pay more than $40,000 to someone, so that you can borrow $20,000 of your own money? (Equity)
The only way to pay back debt, is to pay it back. The longer you take, the more it costs you. The shorter time you take, the less it costs you. The lower the interest rate on money you borrow, the less it costs. Shifting short range debt, like credit card or school loan debt, into long-term debt is a really bad idea.
What you want to do is to pay off all debt, other than mortgage as soon as possible by scrimping and saving and sacrificing.
After that, never allow a balance on your credit card to remain more than a month. Get the right kind of credit card, and pay it off in less than a month, and you pay no interest. |
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painterman19723
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There is not enough information in your question to give a definite response because it depends on the amount of your debt, your home’s equitable value, interest rate of the equity loan, and interest rate on your credit card, etc.
That said, the one thing to always remember is that banks love to use equity loans as an answer to debt resolution. They are the only winners in this game. Yes, you can deduct the interest is most cases, but the potential of losing your home doubles (first mortgage and now second) if you encounter further financial stress due to a job loss, incurring more debt, or other unfortunate event. Creditors are more likely to work with a home owner who has a single mortgage rather than an original one and a second one.
It is generally unwise to lock your home into further debt to resolve a credit card issue, because less than 5 percent of all people are able to stop the credit card spending. What usually happens is they transfer the debt to an equity loan and then continue to rack up credit card debt.
Instead of transferring the debt, why not take control of it. Call your credit card company and ask if they will lower your interest rate; many will if asked. Secondly, instead of paying the declining minimum payment each month, can you pay a fixed higher rate every month? You might have to go without a few perks for several months, but it’s not forever – just a sacrifice until you are back on solid ground.
Lastly, I would like to point you to a website that just might be your saving grace. I am not at all affiliated with this website, but I am using their debt-elimination calculator and plan to pull my family out of over $60,000 worth of debt. By using this tool and sticking to my plan, we will be debt free in 3-1/2 years without using my home’s equity and without filing bankruptcy. Once you have a plan and work your plan, you will be amazed at the sense of peace you feel over your financial situation.
Check out: http://www.debtproofliving.com, sign up, and use the debt elimination calculator to establish your debt repayment plan. Good luck!! |
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TL
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You may want to consult a credit or debt specialist, but as far as I understand it, it depends on what kind of debt the spouse is in. If you're talking huge credit card debts, then home equity may be an option, because the interest payments are tax-deductible (can be written off), I think. Also, the rates for the home equity loan and the existing debt can be a factor. In any case, you should have some plan and schedule to get out of debt (for both the existing spousal debt and the home equity loan) before you add to it. Good luck. |
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Wharf Rat
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It only makes sense to use debt to pay off debt if it will actually save you a large sum of money and you have a plan to pay off the HELOC (home equity line of credit) quickly.
A better plan would be to challenge your hubby to generate more money and to use that to pay off his own debt. Encourage him to start a part time home business on the Internet. Opportunities abound these days for generating income on the Internet. I have a web site where I write articles for people to encourage them to venture out on the Internet and start generating residual income (the best kind).
As for your relationship, it sounds like he is finished incurring debt. However, if he is not being a good steward the family's money, you have a problem with a solution that only God and a good financial mentor can provide. |
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neema s
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yup its good idea i think so. u r right |
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Funnyaccountant
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depends on shat kind of debt the spose is in. If it's credit card debt with high interest, then it's not a bad idea. |
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dennis
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as you know today it's all about money. if the home needs repair fix it. if you can make more money investing it then you can save by paying the loan then invest it. otherwise follow your heart. |
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toonlover
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what?? |
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kvuo
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yeah, borrow on your house to pay off a tank of gas, a hotel room stay, a mcdonalds meal. Pay for that cheeseburger for 30 years! |
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nickster51875
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Whatever you do stay away from the home equity loan. Try to figure out a different way to pay off your spouses debt. Home Equity loans are evil. VERY Evil.
A home equity loan has a big ballon payment at the end of 15 years. For example - You pay 100 dollars a month on your $25,000.00 Home Equity loan. At the end of 15 years, you will owe the bank the the balance.
It also shows up on your credit report as a maxed out credit card which is NEVER good.
Try a consolidation loan or a personal loan... |
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jardin
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It depends on the interest rate. If the home equity loan has a lower interest rate and fees, then it might be worth paying off the higher rate debt with the loan. Also, the spouse can no longer think of it as "his" debt. It would become "our" debt. Otherwise, it will just cause problems. Money is a big factor in failed marriages.
Otherwise, he might want to get a part time job to pay off the debt. |
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nlsephiroth
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depends of if there was a prenup signed before the marriage took place. Debt by one spouse may or may not be the responsibility of the other depending on that and other factors |
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Lov'n IT!
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I don't see why not. If you have already purchased your home and are able to keep up with household bills (heat, water, mortgage, etc), then go ahead and reduce your debt. Unfortunately when you marry someone their debt becomes your debt. |
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lanie1713
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talk to a banker. |
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Sueby
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This depends on whether the debt was accrued before the marriage (meaning it doesn't affect you) or whether you plan to purchase a car or home together and need both credit to be in good standing.
I just experienced this when buying a car and even looking into a home purchase. My husband's credit is bad and instead of paying off some of it, we decided since he can file in a year, we will let him do that. I bought the car in my name only and will buy the home that way too. Otherwise someone can put a lien against what you buy together to get their money from him.
Good luck!! |
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Cybelle
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It depends on the interest of the individual debts. If the rate is lower on the equity loan than that of the other's debt, then sure. Otherwise, it may be better to leave it as it is. |
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trace3000
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Once you are married, your credit basically runs together, like when you take out the loan on the house, they merge your credit together and get a combined score, so it would pay off to pay it off, eventually. |
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true girl
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it's good idea but it's not very safe |
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♥--->{Shauntee}<---♥
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I wouldn't do it. |
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