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SO MUCH DEBT...WHAT DO I DO By Diane St James Copyright © 2001-2002 I often times consult with people who ask me my advice about getting a second mortgage. The reason I'm being asked about this is usually because people have racked up so much debt, they don't know what to do. Some even get to the point where they 'rob Peter to pay Paul. If you haven't heard this expression before it basically means if you are borrowing on one visa to pay other bills, you're robbing Peter to pay Paul. If you find that you do this and more often than you'd like, you're not alone, believe me! Why do you think credit card companies keep increasing the available balances and offering cash advance checks for convenience? Besides offering the obvious advice of cutting up all credit cards except one or two and creating a budget and sticking to it, a home equity loan may be your salvation, if you own a home. Even if you don't have any equity at all, there are lenders that will lend up to 125% of the value of your home. Scary thought I know, but as long as you are planning on staying in your home a long time (so that you don't OWE thousands when you are trying to sell it), it is not a bad option. That is as long as you don't rack up the debts again...because after that there is no more room for another mortgage usually. If it gets too bad, there are always consumer credit counseling agencies, and attorneys to consult if bankruptcy appears to be the only option. But let's get back to the home equity loans. These loans are usually at a higher rate than the first mortgage rates, but they serve their purpose. And the less equity you have, the higher the interest rate. If you are one of those people in the 125% LTV (loan to value) range, you may be looking at a rate of 14.00% or more, but it may be worth it to consolidate all your credit card debts into one payment. There are generally two types of home equity loans. There are closed end fixed rate home equity mortgages that work the same way as your first mortgage; set original loan amount, set payments each month, set time frame to maturity. Then there are things called HELOCs. This stands for Home Equity Line of Credit. This usually has an adjustable rate feature, no exact maturity date, and the balance is flexible. There is a maximum loan amount, but the whole thing can be used or just a portion. This type of loan is good if you are planning on borrowing for something like home improvements, then paying it back then borrowing later toward maybe a car or a child's education, paying that back, and so on. Either loan can provide the help you need for consolidating your debts. And equity mortgage interest can also be included in your Itemized Deductions, Schedule A, up to a loan amount of $100,000 I believe (unless this tax law has changed). (I used to be up to snuff on all of this being an ex H & R Block employee.) If you don't own a home...well, you have to look at other options. I'm always pointing out why it is good to be a home owner and this is one more good reason for owing a home! -------------- Diane St. James is a mortgage professional with 21 years experience. Her website http://www.abcmortgage.net exists to help educate people about the mortgage world. She is the author of "How to Get a Mortgage", an ebook filled with vital tips and secrets, and publishes a weekly ezine called Diane's Mortgage Tips + Other Tidbits. To subscribe mailto:report@abcmortgage.net?subject=subscribeme -------------- Permission is granted to reprint the following article as long as no changes are made and the byline, copyright information, and the resource box is included. Please let me know if you use this article by sending an email to diane@abcmortgage.net |
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