thinking about refi Home Equity loan on a rental home to pay off Credit Card Debt?
CAUTION: that is a dangerous road you are considering.
Do you know what happens to many if not most people who go down that road? They continue using their credit cards, get themselves back into a hole with credit card debt, until now they not only have a massive credit card debt, they also owe a truckload of money on the house!
MY SUGGESTION: try paying off those credit cards as fast as you practically can. In order to do this, you might actually need to [GASP!] spend less money!
1) Pay off the ones with the highest interest rates first.
2) Talk to the banks, try to negotiate lower interest rates. You might not succeed, but it doesn't hurt to try.
3) Pick the highest interest one, and pay it with the maximum amount you can afford. Pay it down. When it is paid off, celebrate! You earned it! Then cut the thing up into a gazillion little pieces.
4) As a card gets paid off, move to the next one in line for paying the maximum you can afford. Again, when that bad boy is paid off, celebrate! Cut it up! Invite your friends, throw a card-cut-up party!
5) Eventually, you will get down to just the one credit card, which you can lock up in your closet for emergencies. Or, you can use it for the rewards points, or to avoid carrying cash around, or whatever, but always pay off the full amount.
6) Alternative to paying highest interest first -- pay the one you owe the least principle on first. You'll be able to pay it off faster, and you'll at least get the emotional thrill of success more quickly.
It's a more difficult road than getting a loan against property, but it's a lot safer in the long run. In the mean time, use a loan against property to invest in more property.
Updated over 2 years ago
Just in case it wasn't obvious in the original post: while you're paying off one card, also be sure to pay the minimums on all the other cards. Otherwise, your credit score will take a big hit.
@Scott Pennington , I agree with @Alvin Sylvain to some degree, but knowing that you'll probably get a lower interest rate on your HELOC sounds pretty good too. I don't take away from this being a lesson learned and how good you'll feel when you pay off those cards by doing Dave Ramsey's debt snowball plan (but start with the least of the cards). What I am unable to decipher is your current situation, which may lead to this being the best plan of attack (to get the HELOC). If you're still learning the real estate game, and you have time to save, use the home equity money to pay off those cards. Save as much as you can and pay off that HELOC, as soon as you can. Now you have, essentially a credit card (HELOC), that you can use to buy property. You'll have saved on interest rates in comparison to CC rates, and already gone thru the process of getting the HELOC. The only downside I see is... how bad is your credit and ability to pay off the HELOC. You may not get as good of a deal as you would have had if you had better credit. Something to think about, but I would weigh out your options and your game plan for your own personal goals. Good luck!
thanks for the advise and suggestions, I have credit rating around 690-712. I want to us the equity to pay off CC and have the tenant pay the new mortgage vs getting a HELOC and personal have to come up with making the payments.
the goal is to absorb the CC debt in the house and have the senate pay it off. (win-win)?
in regards to the how I ended up in this situation in the fist place, the company I was working for after 20 years was purchasing by blood sucking investors and ran the company in the ground and filed chapter 11.
so had to survive until employment thus using CC to live.
thanks again guys for the feedback
So long as the use of credit cards was not frivolous and was based on a set of circumstances that you're aware of and can keep yourself from going back to (which it sounds like it was if it was due to being unemployed - assuming you are now employed), it seems reasonable.
The process that @Alvin Sylvain happens all too often, but only you know if you have the self control to prevent yourself from doing that.
If people can manage the finances properly, then utilizing any tool with a lower interest rate to your advantage would be beneficial. Without the proper financial understanding and management, it's a very expensive lesson to learn.
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