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I am considering rolling in a 34,000.00 credit card debt into a refiance of my house. Rate would be around 6.1%. Also wondering about up coming college costs for my son. Should I put that on a HELOC or go with Sallie Mae to start paying after he graduates in 2009?

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I am considering rolling in a 34,000.00 credit card debt into a refiance of my house. . .

You realize, of course, that asking a question like this is analogous to writing on a medical board, "Hi, I'm sick - will Augmentin help me?" There isn't anywhere near enough information to say anything intelligent. At the very minimum, someone who wanted to answer would need a sketch of your present financial situation, your debts, assets, and current mortgage and CC rates.

I think that with the paucity of information, the only answer that anyone can give is that you need to analyze HOW you ended up 34K in debt, since, without a plan to avoid debt in the future, most folks who pay off their card on a cash-out refi end up right back in debt again.

martybl


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I am considering rolling in a 34,000.00 credit card debt into a refiance of my house. Rate would be around 6.1%. Also wondering about up coming college costs for my son. Should I put that on a HELOC or go with Sallie Mae to start paying after he graduates in 2009?

Well, how long have you been trying to pay off the debt, and when did you stop using the cards? How much a month are you paying on your bills, and what will the refi bill be, and are you talking a total refi taking out all the equity, or a HELOC?

What kind of rates are you paying on your cards, and have you tried to get them lowered?

Martybl was right when he said that you would get more questions than answers, but in general, this board tends to believe that exchanging unsecured debt for secured debt is a poor choice.

If you're willing to post some numbers, we might be able to offer some more specific advice. But, again, quoting Marty, a heck of a lot of people have come through here, refinanced their house, and then run the bills right back to where they were earlier, so now they had even more money going out every month, just paying the loans.

Which college is your son going to, and have you talked to the financial aid department there to see what your options are? And are you really willing to risk your house for your son's education?

Nancy
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I am considering rolling in a 34,000.00 credit card debt into a refiance of my house.

Tread carefully here. I don't know the origins of the 34k in debt. If it is due to "life events" like medical bills, etc, that is one thing. However if a majority of the 34k is due to overspending of one sort or another you have to ask yourself a few questions. Have you come to terms with the habits that have brought on the debt? Have you changed those habits so you don't end up in this situations again? Many people consolidate debt to a HELOC to "clear out their cards" only to end up charging the cards up again.

Also, consider that you are taking unsecured debt on the CCs and converting it to secured debt. Your house is at risk if you cannot pay for any reason.

Also wondering about up coming college costs for my son.

As far as college costs, I would have DS take out the loans and work a job to pay for college. It sounds like you have some debt to deal with and probably can't help as much as you'd like. DS should understand that he needs to take responsibility for his own education at this point.
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I am considering rolling in a 34,000.00 credit card debt into a refinance of my house.

I agree with martybl that we don't have enough information.

A survey conducted for the FDIC (yes, the agency that insures bank deposits) called those who had taken out high LTV loans. 70% of the borrowers were back in credit card debt within 12 months.

Individual stories posted on this board have similar ratios but with two common themes: those who ran credit card debt back up did not have a plan to eliminate debt, including the the HEL or HELOC, whereas those who did not run their credit cards back up had a definite debt elimination plan that included the HEL or HELOC. Most of those who reloaded the card ended up thinking that the HEL or HELOC was a mistake, that restructuring their debt was just an enabler to get further into debt. Those who did not reload the credit cards used the HEL or HELOC for what it was: a financial tool that could help under the right circumstances.

Needless to say, most of the replies you will get aren't enthusiastic about doing a cash-out refinance to pay off the cards because it is likely the credit cards will be reloaded unless there is a specific plan to stay out of credit card debt.
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Those who did not reload the credit cards used the HEL or HELOC for what it was: a financial tool that could help under the right circumstances.

I've been trying to remember stories told by people who used the HEL or HELOC carefully and who didn't go back into debt, and it seems to me that in general they had already been in paydown mode for a year or so, and had set up and were following a budget. They also had specific plans for what they intended to do with the money after the HEL was paid off; increase investment spending, start or expand a business, put money toward rental housing, have one spouse stay home with the hoped for children, or some other specific personal, financial or investment goal that meant something to them.

But does it sometimes occur to the rest of you that we must sound like a well-trained chorus at times?

Nancy
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Very well said Peter!

Sorry, you can only recommend a post to the Best of once.
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>> But does it sometimes occur to the rest of you that we must sound like a well-trained chorus at times?

Nancy


Yes! *laughing* But that's a good thing!

shirehobbit

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Thanks for your attempt at answering my question with such limited information.

1. I've changed my habits. No more credit cards. We used them to over come some flood damage to our house several years ago.

House Market Value: $55000.00
Current Mortgage: $280,000.00 (interest rate of 6.6%)
Credit Card Debt: $34,000.00
Mthly living expenses: $4500.00
Net Take Home: $7100.00 plus potential added income of $$20,000.00/yrly
Current College Plus Loan Payments starting 3/06: $160.00
Future College needs: $100,000.00 over the next 4 years.
Wedding/home repair: $25000.00

One thing I am thinking of is a refi along with a HELOC to cover the college costs as they come up each year.

Your thoughts would be appreciated.
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Personally, I wouldn't go overboard paying for the kids' education. Help out if you want, take care of tuition, but running yourself ragged to pay for their room and board is not something I'd recommend. First off, you have bills to pay, and quite possibly a retirement to fund. As Dayana Yochim noted in her prize-that-I-just-made-up-winning article "College vs. Retirement? Retirement Wins":
http://www.fool.com/News/mft/2005/mft05072234.htm

There are lots of ways to pay for school -- loans, financial aid, the Coverdell ESA, 529 plans and prepaid tuition are a parent's retirement plan saviors. And there are other choices for cash-strapped students pursuing an education (put it off, attend a cheaper junior college for a few years, apply for a work-study program).

On the other hand, there's no retirement scholarship -- no PELL grant for senior citizens or scholarships to gain entry into Sunset Years Retirement Village. If you don't have money for retirement, guess what? You can't retire.

Before you set up your child's golden future, pay off high-interest debt, establish an emergency fund, get adequate insurance, and beef up your retirement savings. After those items are crossed off your list, you can start spoiling the youngsters.


Also, I think letting Junior fed for him/herself is an important step toward the adult world. I worked part-time for living expenses, and took out a mess of student loans to pay tuition and cover for lost wages, and I think that it made me try harder. If I failed a class, I'd have to pay for it again. If I slacked off and couldn't get the job I wanted when I graduated, I'd have a much harder time making ends meet. Of course, fifty people at one school aren't exactly a scientific sample, but the people in my program who worked and paid their own way generally got much better grades than those whose parents paid for everything.

Finally, as for the HELOC, you might want to look at the rates on Stafford loans right now. Last I checked, Stafford rates were lower than for HELOC's, and you don't have to stake your home on it. If your income levels allow, Junior might get a subsidized loan, so that s/he isn't accruing interest while in school. The kid will be responsible for paying after graduation, not you, and if that's too much of a pinch, there are plenty of consolidators who will be willing to lock in the interest rate and stretch the payments out for 20-30 years. I borrowed about $50,000, and I only pay $254 a month. Bear in mind also that your more expensive "name-brand" schools have strong alumni foundations that provide copious scholarships. (I'm told that Harvard students are approached on graduation morning by their classmates, and asked to tithe a portion of their future earnings to their school. What does this add up to? An $80 MILLION scholarship fund in 2004.)

--
LaughingRaven
Don't bother me, I'm Ferberizing.
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Can you explain a little about: he Coverdell ESA, 529 plans and prepaid tuition. My son is already in college. Second semester of his freshman year.
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1. I've changed my habits. No more credit cards.

Glad to hear it. I don't categorically think credit is bad, but it doesn't help to keep using the cards when you're trying to escape debt, and you need a good plan after the debt is paid to know .


We used them to over come some flood damage to our house several years ago.

Ouch! Sounds like it was quite a flood... How's your emergency Fund doing? Hopefully there is a plan already in place to start building this back up? The last thing you want is to refi all the cc debt, and then have another unexpected expense pop up with no eFund. That is one of the easiest ways for a cc to look appealing.



House Market Value: $55000.00
Current Mortgage: $280,000.00 (interest rate of 6.6%)
Credit Card Debt: $34,000.00
Mthly living expenses: $4500.00
Net Take Home: $7100.00 plus potential added income of $$20,000.00/yrly
Current College Plus Loan Payments starting 3/06: $160.00
Future College needs: $100,000.00 over the next 4 years.
Wedding/home repair: $25000.00


Mthly living expenses: $4500.00
Net Take Home: $7100.00 plus potential added income of $$20,000.00/yrly

Ok, so you have about $2600 extra above your income, if I am reading this correctly. If you plow that into the debt reduction of the $34,000.00, you can have that debt gone in approximately 1.5 years. That's not too bad, might take a little longer if don't have an eFund and decide to build that up at the same time.

At 6.1%, you may be able to do better if you are disciplined and have lower interest rates available to you (0% offers).

Future College needs: $100,000.00 over the next 4 years.

Any possibility that you can get the kid(s) to cover some or most of the costs? Or decide that there will be some kind of agreement where you will pay some of the costs based on their performance in school? I don't think it's a bad idea to make the kids responsible for some of the costs.

Wedding/home repair: $25000.00
Any way to minimize or delay these costs well into the future? My first concern would be to get rid of all the non-mortgage debt and ensure my eFund and retirement accounts were healthy.



One thing I am thinking of is a refi along with a HELOC to cover the college costs as they come up each year.


So what happens if interest rates continue to rise? This sounds like an awful lot of debt at potentially higher interest rates each additional year, especially since the "market value" of your house is on paper. That value could increase, decline, or stay about the same.

My personal concern about carrying this much debt would be an unexpected event such as a job loss or medical expense. One bonus about having low expenses, no debt and an eFund is that if one of these whammies comes up, you won't be worried about whether or not you can sell the house for enough money to pay the debts.

Without knowing more about your exact situation, these are just my thoughts.

Respectfully,
k.
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I made an error in my list of expenses, etc.

I also have a mortgage & current HELOC payment of $3100 on top of monthly expenses listed below.

House Market Value: $55000.00
Current Mortgage: $280,000.00 (interest rate of 6.6%)
Credit Card Debt: $34,000.00
Mthly living expenses: $4500.00
Net Take Home: $7100.00 plus potential added income of $$20,000.00/yrly
Current College Plus Loan Payments starting 3/06: $160.00
Future College needs: $100,000.00 over the next 4 years.
Wedding/home repair: $25000.00
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Can you explain a little about: [t]he Coverdell ESA, 529 plans and prepaid tuition. My son is already in college. Second semester of his freshman year.

That's part of Ms. Yochim's article, so it may or may not be applicable to your particular situation. The Fool offers a quick reference chart at http://www.fool.com/college/compare.htm

A Coverdell ESA is an updated version of the Education IRA, and is similar to a Roth, except that it's meant for education expenses. Contributions can be up to $2,000 per year per child, and distributions are tax-free for education purposes, any time until the child turns 30 (no age limit for special-needs beneficiaries). That doesn't just mean college, either; if you have younger ones who might go to a private secondary school, or need to pay for uniforms or a computer, this could be a good idea. If one of the kids decides to go straight into the workforce, the funds can be transferred to another child (sister, cousin, whoever), or withdrawn with the same penalties you'd get with a Roth IRA.

Some states offer 529 plans, and they come in two flavors: prepaid tuition or savings plans. Which, if any, are available to you depends on the state in which you live.

* Prepaid tuition allows you to pay today's tuition rates for future education. For instance, if State U charges $200 per credit now, and you contribute $2,400 to a 529 prepaid plan, Junior is guaranteed 12 credits at State U when he or she reaches college age.
* 529 Savings Plans are like the ESA; you contribute to the program, your contributions usually go into a specially designated mutual fund, and grow until Junior's ready to use it.

The main benefit of 529's is that they usually have much higher contribution limits. However, they sometimes restrict where the money can go. For instance, my alma mater, the University of Alaska, has a prepayment option, but tuition is only good at certain schools in the Pacific Northwest. If Junior would rather go to Duke, I'll have to figure out which nephew I like best.

Again, this is determined by state, so your mileage may vary.

--
LaughingRaven
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I also have a mortgage & current HELOC payment of $3100 on top of monthly expenses listed below.

House Market Value: $55000.00
Current Mortgage: $280,000.00 (interest rate of 6.6%)
Credit Card Debt: $34,000.00
Mthly living expenses: $4500.00
Net Take Home: $7100.00 plus potential added income of $$20,000.00/yrly
Current College Plus Loan Payments starting 3/06: $160.00
Future College needs: $100,000.00 over the next 4 years.
Wedding/home repair: $25000.00



Ok, so if I understand correctly, your current expenses are as follows:

Mthly living expenses: $4500.00 + mortgage & current HELOC payment of $3100 = $7600.00 monthly expenditures

Net Take Home: $7100.00.

I don't know what it takes to get the "potential added income of 20,000/yr", but without it you have a $500.00 shortfall, and if I understand correctly, you will have a $660.00 shortfall starting in March.

It's good you've already stopped using the cards, but without the budget and reviewing and trimming expenses, it's only one part of the solution.

Here would be my initial plan of action:

1. Document all "monthly living expenses" and see where you can make some cuts. It helps to know where your money is going before you try to make cuts. I did this by tracking every single expenditure for several months, and saving the receipts for everything including the .50 cup of coffee. Some people post expenditures to the board for suggestions with #2.

2. Once you know where you are spending money, you can see places to cut. Easy and obvious ones are: cable tv, extra subscriptions to netflix or magazines or the like, reducing land phone and cell phone to one or the other, taking lunch to work, reducing the number of times you eat out.

3. Move to a cash-only diet until the debt is paid for. If there isn't enough money in the cash-only budget, it doesn't get purchased. I'd also make sure the first payment I make each month is to the eFund, even if it's something small like $50.00. As much as possible, seek to increase your money incoming each month so that you can accelerate debt payoff with the extra.

4. Even if I chose to roll the debt into a HELOC, I'd treat it with the same urgency as any credit card, and start snowballing the debt with the highest rate to get it reduced and eliminated ASAP. (For more on Snowballing, check out the FAQ).

5. I'd let my kids know ASAP that they will need to assume some more responsibility for school costs, at least until the debt gets under control. The debt is something that the whole family will need to work on together. In my opinion, it doesn't make sense to keep assuming debt for college/wedding and any non-essential home repairs when you already have quite a bit of debt and that debt could jeopardize your home.

A couple of alternative suggestions:

- consider selling the house, moving to a smaller or less expensive place or renting short term, and paying off the debts. might be less stressful, especially if your kids will be out and you would consider selling anyways.

- consider having kids live at home to reduce expenses and attend a junior college then transfer to university of their choice.

Hope this helps...




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I made an error in my list of expenses, etc.

I also have a mortgage & current HELOC payment of $3100 on top of monthly expenses listed below.

House Market Value: $55000.00. . .


Hopefully the market value of your house is an error, too. I'm guessing that there is an extra zero in there - $550,000. Even so, it's not a pretty picture. By my math you're spending $500/month more than you're making. Shuffling debt around from CC's to HELOC's isn't going to fix this situation. Suggestions:

1) Spend less than you make. The most basic of all financial rules - ask Ben Franklin or Charles Dickens' Mr. Micawber. If you're making $7100/mo. no financial chicanery is going to allow you to spend $7600/mo., even before the inevitable, unanticipated, emergency or one-time expenses arise. You need to LBYM, and this board, even more so than the LBYM board, offers detailed, practical advice at doing so. A number of people post their monthly budgets, and get help from this board in identifying savings opportunities. $4500/mo. in addition to housing sounds like a LOT of money - I bet that this board can find room to save.

2) You can't afford to put your son through college. We'd all like to be able to support our childrens' higher education, but you're not in a position to do so, at least not to the tune of $25K/year. If he's a superior student, then he ought to be able to find scholarships, if not, then a couple years at a community college, followed by the last couple at a "name" state school, is a time-honored money-saving tip. Paying for something that you can't afford isn't doing him any favors. I think that if you ask most young people whether they'd rather have educational debt, or the financial responsibility for their elderly parents, most would take educational debt.

3) Where's the retirement savings? Are you fully funding your tax-advantaged retirement accounts? Do you have additional, taxable, retirement accounts? If you're old enough to have a child in college, you're old enough to worry about retirement. There are a variety of retirement calculators out there, and, even with the most conservative assumptions, none of them suggest that you can retire comfortably with much less than a seven-figure retirement account.

4) Is the "Wedding/home repair" (odd pairing) expense in the future? How much goes to the wedding and how much to home repair? Maintaining a home is necesary to keep the value of the housing investment. Weddings, OTOH, are pure consumption and can be scaled back or eliminated.

martybl
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I am considering rolling in a 34,000.00 credit card debt into a refiance of my house.

Only attempt this if you have already changed your attitude about spending first. I did this only after I was able to prove to myself that I could avoid using the credit cards by operating on a cash only basis for several months first. If you can't go cold turkey on the credit cards, then don't even try for a refi, since you'll just end up in a deeper hold.

The behavior must change first.

foolazis
operating on cash only for 11 months now
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<Current College Plus Loan Payments starting 3/06: $160.00
Future College needs: $100,000.00 over the next 4 years.
Wedding/home repair: $25000.00 >

I am going to be the cranky woman here!!!

Am I the only woman on the face of the earth who had to put herself thru college and pay for her own wedding!!!

okay, I feel better now!

electrasmom

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I also have a mortgage & current HELOC payment of $3100 on top of monthly expenses listed below.

The additional $3,100 means that you are -$500 a month. I am not counting on the additional $20,000 because it is potential.

Your home value is probably $550,000 and not $55,000. With a softing of the real estate market, you can't count on that value over the next few years.

You are not in a position to pay all of your son's college expenses. Student loans don't normally require payments while a full time student.

Debra
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Finally, as for the HELOC, you might want to look at the rates on Stafford loans right now. Last I checked, Stafford rates were lower than for HELOC's, and you don't have to stake your home on it. If your income levels allow, Junior might get a subsidized loan, so that s/he isn't accruing interest while in school. The kid will be responsible for paying after graduation, not you, and if that's too much of a pinch, there are plenty of consolidators who will be willing to lock in the interest rate and stretch the payments out for 20-30 years.

This picture will change significantly. Bush just cut 12.7 billion from the student loan program. In addition the Bush administration has been pushing to link the interest rate on students loans to the prime--effectively turning student loans into a variable interest rate loan.

And as we all know, Reagan significantly cut the Pell Grant program and limited who was eligible. Few of those cuts have been reversed.

Less grants, less loans...No Child Left Behind.

You might want to reconsider the rosy Financial Aid picture.
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I can only tell you one thing about the education aspect.

A good friend of mine (who owns his own construction company and a very large house) and I were driving around Raleigh one day. We passed the big Barn that NC State has as part of their Aggy program. He looked at it and said "That place brings back a lot of memories"

I asked him to explain, and he told me that he worked in that barn for 4 years, shoveling Cow Manure to pay for his Civil Engineering degree.


Makes you think eh?


Good Luck
Zath
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In addition the Bush administration has been pushing to link the interest rate on students loans to the prime--effectively turning student loans into a variable interest rate loan.

Really?

http://money.cnn.com/2005/05/31/pf/college/loanrate_change/

Oh.

Well, the good news is that the variable rate would be capped at 6.8%, which is lower than the current 8.5% cap for non-consolidated loans.

I can see the logic in Rep. Petri's proposal; there's a risk to consolidators that rates might rise enough and they'd run into cash-flow problems, like the S&L's back in the day. So you build in a buffer that will at least take some of the risk off. At the same time, though, there's an industry that sends me about fifty letters a month wanting to consolidate my loans. with so many competitors, why do we need regulation? Why not allow the lenders to set their own terms, and let the market do its thing?

Okay, I just answered my own question: student credit cards. If the kids will accede to the miserable terms of student cards (I did), they're going to get seriously F'ed on the terms of a $30K consolidation.

--
LaughingRaven
At 29.99%, I should at least get a fancy logo on my card.
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I am going to be the cranky woman here!!!

Am I the only woman on the face of the earth who had to put herself thru college and pay for her own wedding!!!

okay, I feel better now!



You can be assured that you are not. (Well, we did get some help on the wedding, but DH and I put the rest on cards - which have since been paid off.)

I'm glad you are feeling better :-)

DizChick
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>I am going to be the cranky woman here!!!
>
>Am I the only woman on the face of the earth who had to put herself >thru college and pay for her own wedding!!!
>
No of course not! But you are still a saint in my book! Way to go girl!
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Those who did not reload the credit cards used the HEL or HELOC for what it was: a financial tool that could help under the right circumstances.

----------------------------------------------------------

I've been trying to remember stories told by people who used the HEL or HELOC carefully and who didn't go back into debt, and it seems to me that in general they had already been in paydown mode for a year or so, and had set up and were following a budget. They also had specific plans for what they intended to do with the money after the HEL was paid off; increase investment spending, start or expand a business, put money toward rental housing, have one spouse stay home with the hoped for children, or some other specific personal, financial or investment goal that meant something to them.

But does it sometimes occur to the rest of you that we must sound like a well-trained chorus at times?

Nancy


Yes! I mean, I keep expecting us all to break into song together and then do a time-step...:-)

CC Board joke:

Knock, knock.
Who's there?
Someone who wants to roll some credit card debt into a HEL--
NO!


--Booa
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**House Market Value: $55000.00
Current Mortgage: $280,000.00 (interest rate of 6.6%)**


Did I read this correctly? Is there a typo in the market value of your house? Please tell me my eyes are wrong. I can't imagine you want to take out a HELOC when you already have so much outstanding debt.

Other posters are right, your son needs to look at scholarships and part time jobs. I've already told my 2 daughters (12 and 15) that they will hae to pay a good portion of college costs, even if it takes them 8 years to graduate.

Dragon
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Did I read this correctly? Is there a typo in the market value of your house? Please tell me my eyes are wrong. I can't imagine you want to take out a HELOC when you already have so much outstanding debt.

I think that the OP quit following this thread when she didn't hear what she wanted to hear. Some folks have to "hit bottom" before they become open to advice.

martybl

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