SO MUCH DEBT...WHAT DO I DO
Diane St James © 2003
I often times consult with people who ask me my advice about
getting a second mortgage. The reason I'm being asked about this is
usually because people have racked up so much debt, they don't know
what to do.
Some even get to the point where they rob Peter to pay Paul. If
you haven't heard this expression before it basically means if you
are borrowing on one visa to pay other bills, you're robbing Peter to
pay Paul. If you find that you do this and more often than you'd
like, you're not alone, believe me!
Why do you think credit card companies keep increasing the
available balances and offering cash advance checks for convenience?
Besides offering the obvious advice of cutting up all credit cards
except one or two and creating a budget and sticking to it, a home
equity loan may be your salvation, if you own a home. Even if you
don't have any equity at all, there are lenders that will lend up to
125% of the value of your home. Scary thought I know, but as long as
you are planning on staying in your home a long time (so that you
don't OWE thousands when you are trying to sell it), it is not a bad
option. That is as long as you don't rack up the debts
again...because after that there is no more room for another mortgage usually.
If it gets too bad, there are always consumer credit counseling
agencies, and attorneys to consult if bankruptcy appears to be the
But let's get back to the home equity loans. These loans are
usually at a higher rate than the first mortgage rates, but they
serve their purpose. And the less equity you have, the higher the
interest rate. If you are one of those people in the 125% LTV (loan
to value) range, you may be looking at a rate of 13.00% or more, but
it may be worth it to consolidate all your credit card debts into one payment.
There are generally two types of home equity loans. There are
closed end fixed rate home equity mortgages that work the same way as
your first mortgage; set original loan amount, set payments each
month, set time frame to maturity.
Then there are things called HELOCs. This stands for Home Equity
Line of Credit. This usually has an adjustable rate feature, no exact
maturity date, and the balance is flexible. There is a maximum loan
amount, but the whole thing can be used or just a portion. This type
of loan is good if you are planning on borrowing for something like
home improvements, then paying it back then borrowing later toward
maybe a car or a child's education, paying that back, and so on.
Either loan can provide the help you need for consolidating your
debts. And equity mortgage interest can also be helpful when tax time
comes around if you are eligible to itemize (ask your accountant).
When you get a second mortgage and can consolidate everything into
one payment, you'll be in a much better position to pay that debt of
earlier and sleep much better too!
Diane St. James is a mortgage professional with over 23 years
experience. Her website http://www.abcmortgage.net exists to help
educate people about the mortgage world. She is the author of 2
e-books, and has been quoted in the WALL STREET JOURNAL,
appeared on national cable new television CNBC, and was featured on
a Cover Story for USA