Would this possibly be okay to do?

iVillage Member
Registered: 05-28-2004
Would this possibly be okay to do?
3
Sun, 03-13-2005 - 11:07am

Hi there,

I've been reading this board for a few months now, and I feel like I'm learning a lot. We have about 31,000 in credit card debt. 21,000 is at 2.9% and 10,000 is at 3.9%, and we haven't been adding to it for a year now, just trying to pay it down. Last week, our AT&T card (the 21,000 balance) raised the rate to 29% (the 2.9% is supposedly fixed for the life of the balance)! Fortunately, I had been reading this board and immediately understood what was going on. There has been a mistake on our credit report that I've been trying to fix - a payoff on a car loan was left with one penny by mistake and made it look like we were 30-60-90 days late, etc. - which was corrected, but it has been a little tricky to get the credit reporting agencies to get it right. Anyway, the Equifax report was still wrong and that is what AT&T used to raise the rate. I explained the problem we've been having with this, and AT&T said they have reduced the rate back to 2.9%. They said we'd better get it fixed on the report though because they will be doing a check in 6 months again. Anyway, it just freaked me out! It just seems so ruthless!

Well, our home is worth about $400,000. First mortgage of $276,000 at 5.75%, second mortgage HELOC at 7.99% (this is adjustable, paying only interest) of $52,000. I spoke with the bank, and we could add the $31,000 we owe to our second mortgage, change it to a home equity loan at 8.25% fixed, paying down principle. This would also save us $390 a month in payments. We are currently living right at our means, not ever saving anything (why we've used credit cards I'm sure, for those "unexpected" things). Anyway, I just felt so excited to be "rid" of the credit card payments and have that $390 to save and use for those things we haven't planned for. (I am in the middle of Mary Hunt's Debt-Proof your Marriage, so I'm hoping to get more ideas on how to plan our budgeting here soon too). Anyway, I know I've heard that this is not always a good idea, especially stretching out the payments over 30 years and therefore paying more interest. If it is tax-deductible, doesn't that help?

I am just scared that AT&T will figure out a way to increase the rate again in the future. I am very careful to pay things on time, but it is still scary - obviously mistakes can be made. I don't know... my husband wonders if we should just put the $21,000 into the home equity loan. This would still decrease our monthly payments by $240, which I could put into savings for emergencies (or towards the home equity loan?). Then we'd just have our $10,000 credit card balance at 3.9% to work at paying down (supposed to be fixed for life also, and so far they haven't tried to raise the rate).

Am I just fooling myself to think that putting all (or even just some) of our credit card debt into a home equity loan could be a good idea?

Thanks for your help and advice!

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iVillage Member
Registered: 03-27-2003
Mon, 03-14-2005 - 7:21am

Personally, I try not to ever trade unsecured debt for secured, ESPECIALLY against the house. The reason is, if anything ever happens and you're unable to make a credit card payment, the worst that happens is a bad credit report, maybe court, maybe bk. But if anything ever happens and you can't make a mortgage or home equity payment--poof--you could lose your home. To me this is a big deal.

Granted, I hope never to be in that situation, but if I ever am, you'd better believe I'm going to do everything in my power to keep making that mortgage payment, even if it means having to stop paying ccs for a while. Heck, I'll let them cut off power, water, and my phone before I'll risk losing my house.

It sounds like your cc rates are very reasonable, and that AT&T was reasonable about returning you to the appropriate interest rate. And it sounds like your credit rating is good, so if you ever *do* have a problem with one of your creditors, you can just surf the balance over to a better card. I know it's a little scary, but honestly, any creditor is going to have a certain amount of power over you, whether the loan is against your house or just against your good credit rating. I'd rather they have the power to raise my rate than the power to take my home.

It does sound as though you have a good grip on things though, and I'm proud of you for doing the Mary Hunt thing. I love her, and she has had a profound influence on the way we spend/save/give our money.

Keep coming to this board, and keep plugging.

Blessings,

Heather

iVillage Member
Registered: 06-18-2004
Mon, 03-14-2005 - 9:42am

I agree with Heather. I wouldn't trade unsecured debt for secured debt, especially putting my house on the line. I have noticed a lot of commercials lately touting that very thing and while the interest rates may sound better, I wouldn't want to possibly jeopardize the roof over my head.

Good luck in your efforts.

Kellie

iVillage Member
Registered: 05-28-2004
Mon, 03-14-2005 - 10:40am

Thank you for your advice! I think you guys are right. It is sort of disappointing to not "get rid" of the credit card companies and have some extra money each month. But if we just keep working on not increasing our debt and keep paying it down, I think we should have it paid off in about 4 years. After that, then we'd have $700 more a month less in payments - so I'm going to try to look forward to that. I'll keep reading Mary Hunt and see if I can work on the way we spend money and try to start saving even just a little each month. I put $100 in savings, so that's a start, right? :) My husband and I are in agreement too, so that's good. I guess I'm just so tired of the credit card debt. However, we did have it up to $41,000 last year, so I guess we are making progress to have it down to $31,000. It just feels like it will always be there, and I wish I could just make it disappear sometimes! :) Thanks for your advice about this. I really appreciate it. I hope to particpate more in the board - maybe that will also help me keep motivated to pay this debt off.

Thanks again!

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