Refinance

iVillage Member
Registered: 03-27-2003
Refinance
4
Sun, 01-22-2006 - 4:05pm
All right, here's the situation. My DH and I are expecting a workmans comp settlement within the next few months. We have cc debt of about $12,000. We have been making payments but he is so stressed out he wants me to consider refinancing our home to pay them off rather than either paying a little at a time. If we do the refinancing we will pay off our car (10,000.) our credit cards, and have 8,000. for us to use as we wish. I think we should wait until the settlement comes through and continue making our payments, he thinks we should refinance the house and when the settlement comes in to put that money on the mortgage. Any way you look at it the bills will be paid. Any suggestions or comments would be appreciated.
iVillage Member
Registered: 05-09-2005
In reply to: aligram
Sun, 01-22-2006 - 4:23pm
Hi,
If you can avoid it, I'd say don't refinance. If you do, you have transferred unsecured debt to a secured debt status -- you could for example, lose your house if you get behind on the payments, but you won't lose your house over unpaid bills. Anyway, you said you are making payments. I'd hold off. You didn't give the amount you expect, but it looks like it's around 30,000.00 ??? The problem with rolling all the debt over into refinancing is that then you are free to rack up more credit card debt on the now empty cards -- so personally I wouldn't do it. I know that you can deduct the interest on the refinance, but - I still think it is a dangerous proposition.
Good luck with whatever you choose.
Megan
iVillage Member
Registered: 06-18-2004
In reply to: aligram
Sun, 01-22-2006 - 5:22pm

ITA, I wouldn't refinance. The main reason is as Megan said, you are trading unsecured debt for secured debt. If you can't make the mortgage payments they can take your house. But if you fall behind in the cc payments, what are they going to do, take back that dinner out you charged two years ago? ;-).

I know that it is tempting but it is just too risky IMHO.

Good luck and let us know what you decide to do.

Kellie

iVillage Member
Registered: 03-27-2003
In reply to: aligram
Sun, 01-22-2006 - 5:32pm

I strongly agree with the previous posters.

I don't remember the exact statistic, but something like 80% of homeowners who roll unsecured debt into their homes end up back in the same amount (or more) cc debt within two years. Why? It's not clear, but the strongest theory I've heard is that when you don't have to struggle to repay debt the first (or second, or third, or fourth) time, it gives you very little incentive to avoid doing the same thing a second (or third, or fourth, or fifth) time.

Besides, the longer, slower way of repaying debt has its rewards. One of the biggest ones is a whole set of financial skills that can only be learned through practice. You don't get that if you "pay off" all your debt in one big lump sum.

Unfortunately, what too often happens when people refinance to pay off cc debt (and has happened to people who have been on this board), is that people end up refinancing too many times and they are straddled with too much debt, can't make their payments, get behind, and end up losing their homes.

Even if you were to be one of the lucky 20% who doesn't fall into this trap, what happens if one of you loses your job or has an accident, and you can't pay your (larger) mortgage payment for a few months? You could lose your home.

Besides, by refinancing you tack extra years onto your mortgage. Most likely, you will end up paying WAAAAAAYYYY more in interest due to the fact that you are paying it over a longer term.

Basically, the refinance is just another clever way the lending industry has found of digging people deeper in debt so they can continue to collect interest payments. For consumers, it's just another way to dig a grave.

I pretty much NEVER recommend rolling unsecured debt into secured debt. You have too much to lose. Don't risk your home over this!

If you decide to do it anyway, I hope hope hope you will be in the 20% (fingers crossed!!)

Blessings,

Heather

iVillage Member
Registered: 02-19-2004
In reply to: aligram
Sun, 01-22-2006 - 9:06pm

I totally agree with heather.

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