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Author: Kitti29 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308470  
Subject: Best way to pay off Credit Cards? Date: 4/21/1999 9:34 PM
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OK-need some help here folks. I'm getting married in about three months. Both my fiance and I own our own homes and have a fairly significant amount of equity in each (about $30,000 each). We are looking to sell both places in about a year and buy one together.

I also have about $7,000 in credit card debt that we want to pay off as quickly as possible. Given our current financial situation, it will probably take about a year, realistically, to pay this debt off, if I continue making payments on a monthly basis.

Would it be better to take some of the equity out of my home to pay this off immediately, or to continue paying as I have been, given that we may sell the home in a year or so? Please share your thoughts!

Please respond via email if possible to Kitti29@aol.com, as I am new to the message board experience and am not sure I would find your response!

Thanks!
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Author: TMF2Aruba Big funky green star, 20000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9042 of 308470
Subject: Re: Best way to pay off Credit Cards? Date: 4/21/1999 9:56 PM
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Would it be better to take some of the equity out of my home to pay this off immediately, or to continue paying as I have been, given that we may sell the home in a year or so? Please share your thoughts!

Hi Kitti!

First, Welcome to TMF and congratulations on your upcoming marriage.

Yours is a frequent question here, and the most common response is to keep paying off your debt by sending as much above the minimum each month as you can. Budget carefully, and eliminate any unnecessary spending. That's the best idea of all.

Don't use equity in your home if you can avoid it, as it just doesn't make sense to use secured debt to pay unsecured debt. Why would you want to put your home on the line? : )

Hope this helps!

Tony
...but I still am...

Off2Aruba

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Author: Leviathan Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9044 of 308470
Subject: Re: Best way to pay off Credit Cards? Date: 4/21/1999 11:16 PM
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I'm getting married in about three months.

Congratulations!

I also have about $7,000 in credit card debt that we want to pay off as quickly as possible. Given our current financial situation, it will probably take about a year, realistically, to pay this debt off, if I continue making payments on a monthly basis.

Would it be better to take some of the equity out of my home to pay this off immediately, or to continue paying as I have been, given that we may sell the home in a year or so? Please share your thoughts!


My advice : save money and pay the $7,000 off quickly (even sooner that a year if possible). You can't borrow your way out of debt (kind of like trying to dig your way out of a hole). Plus, by getting a Home Equity Loan, you're substituting unsecured debt for secured debt and putting the home at risk. Plus, get on a budget and make sure you never run up the debt again. Otherwise, all will be for naught.

Leviathan


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Author: JABoa Big gold star, 5000 posts Feste Award Nominee! Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9045 of 308470
Subject: Re: Best way to pay off Credit Cards? Date: 4/21/1999 11:23 PM
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Just to add to TMF2Aruba's thoughts, whenever you go over to home equity loans, you are looking at points, title searches, attorneys' fees, and so on. Even if you were not looking at CC debt, to refinance so soon before you plan to sell would not make a lot of sense, in my opinion.

As it is, there are things that most people can do to save maybe $200 a month on not spending, without much pain. The LBYM board has suggestions on how to start. Click on any individual message, then go to the Tips and FAQ's in green at the bottom.

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Author: VlLPastor Big red star, 1000 posts 10+ Year Anniversary! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9046 of 308470
Subject: Re: Best way to pay off Credit Cards? Date: 4/21/1999 11:52 PM
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Well. Can you sell your house quicker than a year? In that case, you might want to take $7,000 out of the proceeds and pay off the credit cards. If you can't then pay off the cards.

Valerie

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Author: pwyles Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9047 of 308470
Subject: Re: Best way to pay off Credit Cards? Date: 4/22/1999 12:09 AM
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Leviathan, Aruba
Unless I misread this, the question is not the usual should I take a home equity loan to retire debt. The question I saw is I'm selling my house regardless should I use some of the proceeds of the sale to retire debt. In your opinion is the answer "Don't use equity to retire debt" different if you are using the proceeds of a real estate sale your are going to make anyway?

Kitti
Congratulations on your wedding.

The general consense here is it is better to retire unsecured debt from current income rather than use things like Home Equity Loans and other secured debt. Whether it is a good idea to use some of the proceeds from the sale of your house to retire debt I haven't formed an opinion on yet.

The bigger problem I saw was if you both sell your house after your married and the sales take place within 2 years of each other I think only one of the houses qualifies for the $200,000 capital gains exclusion and you will end up taking a serious tax hit. TMFTaxes can clarify that point. (Aruba can you post an appropriate link for tax consequences?) One alternative I see is if you were both to sell your house before you get married then both of you could claim the $200,000 exclusion. I also don't know how it works when you "move" the capital gains forward to the next house.

Before taking any of that stuff that resembled "tax advice" consider the source. I am an engineer I am NOT a CPA or tax preparer.

~~paul

ps This is both getting posted and sent by email to Kitti. Kitti please check back on the board since more responses are likely to show up on this board.

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Author: zgriner Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9050 of 308470
Subject: Re: Best way to pay off Credit Cards? Date: 4/22/1999 8:17 AM
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Would it be better to take some of the equity out of my home to pay this off immediately, or to continue paying as I have been, given that we may sell the home in a year or so?

I am going to go against the mantra, regarding your situation. Since you will have 2 homes, it makes sense to get a short-term home equity loan to pay your cards off. While no one knows what the future brings, and it's always possible for you to suffer a catastrophic financial setback and call off the wedding, the odds are against it.

What makes most sense is to determine if you will save money with a home equity loan, given that you usually have to pay some kind of origination fee, recordation fee, and appraisal. I realize the interest becomes tax-deductible, but make sure you account for all costs. Why not try to play the balance transfer game? You should be able to get 3.9%-5.9% for at least 6 months. Some cards will offer 9.9% fixed.


Zev

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Author: 2gifts Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9056 of 308470
Subject: Re: Best way to pay off Credit Cards? Date: 4/22/1999 9:38 AM
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What makes most sense is to determine if you will save money with a home equity loan, given that you usually have to pay some kind of origination fee, recordation fee, and appraisal.

I've seen this mentioned a couple of times about having to pay closing costs of some sort to get a home equity line. Where I am in Massachusetts, I found that virtually all the lenders picked up the tab for the home equity line of credit so it didn't cost us anything to get the credit line. I wanted the credit line vs. a home equity loan because I didn't need the money right away, and I wasn't sure how much, if any, I would need, so I couldn't see a reason to take out a loan for a specific amount. Even though you have a specific amount in mind, if there is a difference in costs to get a home equity line of credit vs. a home equity loan, you may be better off with the line of credit and just cut a check or checks to the credit card company.

And I also think that in your situation where you are planning to sell the houses but need to get to the money sooner, a home equity loan is not a bad thing. In your case, you seem to be using it as a convenient way to get to the funds now instead of waiting til you sell the house, and you seem to be willing to pay the interest as the convenience fee to get the money sooner. If you do go this route, however, your house cannot be on the market already or the banks may be reluctant to give you the loan.

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Author: RecoveringFool Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9067 of 308470
Subject: Re: Best way to pay off Credit Cards? Date: 4/22/1999 11:38 AM
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<<OK-need some help here folks. I'm getting married in about three months. Both my fiance and I own our own homes and have a fairly significant amount of equity in each (about $30,000 each). We are looking to sell both places in about a year and buy one together. >>
Off-topic
Since no one has mentioned this I will - you may want to check the tax laws on capital gains when you sell your houses(check the tax laws NOW). I don't know what the limits are but there's a nagging voice in the back of my head saying, you may only get to exclude the capital gains on one of the houses after you're married and there is a limitation about how recently you lived in it. Since we haven't sold since the tax law changed, I'm not up on the new regs.

Jacki

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Author: Airmom One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9070 of 308470
Subject: Re: Best way to pay off Credit Cards? Date: 4/22/1999 12:03 PM
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<<OK-need some help here folks. I'm getting married in about three months. Both my fiance and I own our own homes and have a fairly significant amount of equity in each (about $30,000 each). We are looking to sell both places in about a year and buy one together. >>
Off-topic
Since no one has mentioned this I will - you may want to check the tax laws on capital gains when you sell your houses(check the tax laws NOW). I don't know what the limits are but there's a nagging voice in the back of my head saying, you may only get to exclude the capital gains on one of the houses after you're married and there is a limitation about how recently you lived in it. Since we haven't sold since the tax law changed, I'm not up on the new regs.


Response from a knowledable CPA:

The tax law has changed. Single taxpayers now exclude up to $250,000 of capital gain from the sale of a home. You don't have to be married.

Married taxpayers filing jointly can exclude $500,000 worth of gain.

Happy homeselling!

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Author: RecoveringFool Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9071 of 308470
Subject: Re: Best way to pay off Credit Cards? Date: 4/22/1999 12:09 PM
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<<The tax law has changed. Single taxpayers now exclude up to $250,000 of capital gain from the sale of a home. You don't have to be married.

Married taxpayers filing jointly can exclude $500,000 worth of gain. >>

Wait - what's the limit - once every 2 years ? And how long to have to have lived in the house ?

Thanks
Jacki

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Author: Airmom One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9093 of 308470
Subject: Re: Best way to pay off Credit Cards? Date: 4/23/1999 8:16 AM
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<<The tax law has changed. Single taxpayers now exclude up to $250,000 of capital gain from the sale of a home. You don't have to be married.

Married taxpayers filing jointly can exclude $500,000 worth of gain. >>

Wait - what's the limit - once every 2 years ? And how long to have to have lived in the house ?


There are 2 tests that must be met:
Test 1 - You owned and used the home as your main home for 2 years or more during the 5-year period ending on the date you sold or exchanged your home.
Test 2 - You have not sold or exchanged another main home during teh 2-year period ending on the date of the sale or exchange of your home.

For married couples filing jointly, both of you must meet test 2, but only one spouse needs to meet test 1.

See Pub. 523 for details.

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Author: Airmom One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9095 of 308470
Subject: Re: Best way to pay off Credit Cards? Date: 4/23/1999 8:29 AM
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<<There are 2 tests that must be met:
Test 1 - You owned and used the home as your main home for 2 years or more during the 5-year period ending on the date you sold or exchanged your home.
Test 2 - You have not sold or exchanged another main home during teh 2-year period ending on the date of the sale or exchange of your home.

For married couples filing jointly, both of you must meet test 2, but only one spouse needs to meet test 1.>>

Slight correction:

For married couples filing jointly, both of you must meet test 2, but only one spouse needs to meet THE OWNERSHIP REQUIREMENT in test 1.





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Author: jrr7 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9108 of 308470
Subject: Re: Best way to pay off Credit Cards? Date: 4/23/1999 3:01 PM
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Well said, Levi.

BTW, to the original poster: In order to get out of debt, you have to face the reason why you got into debt in the first place. If it was due to overspending, you really have to make sure you change those habits. If it was due to not having a budget, make one up and stick to it! If it was due to an emergency, then in the future you should stick away some money in an emergency fund so you can draw on that before carrying a debt from month to month.

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Author: widgets One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9133 of 308470
Subject: Re: Best way to pay off Credit Cards? Date: 4/23/1999 9:33 PM
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Sell the house.

Pay off credit dept.

Invest balance in .COM STOCK.

Get married .

Live happily ever after.

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