Q: We have been in our house about 5 years and plan on staying for a while. We refinanced about 18 months ago to pay off credit card debt. Now, we have credit card debt again and little equity, but need to make home repairs that could be somewhat costly.
What do you suggest as far as a home equity line of credit or other ideas to get more cash? Thanks.
A: It sounds to me as though you have a pretty serious spending problem that you’re going to have to take care of before we can tackle future home repair or improvement projects.
Here’s the real problem: You can’t count on using your home equity to pay off future credit card debt. What if your home’s appreciation slows down or, worse, levels off? What if your home’s value falls?
I would have thought that tapping into your home equity once would have helped you realize that you need to figure out how to live within your means. Clearly, the message didn’t get through because you have more debt and now very little home equity to tap.
I’d like to see you talk with someone about your budget and figure out whether you can cut back on some of your spending or if you need to find a way to bring in more money — even taking a short-term second job to boost your income to pay off your credit card debt and perhaps finance these repairs.
The hard truth you have to face is no lender is going to give you a home equity loan if you don’ have any home equity.
Please think carefully about what kind of repairs and improvements you’re going to make to your property and whether you can wait to do them. Adding another $40,000 in credit card debt isn’t going to help your situation. So unless your roof is leaking, I think I’d work out the budget issues first — then figure out what kinds of improvements you can afford to make.
Consumer Credit Counseling Services (www.cccsinc.org) offers free budget counseling over the phone, over the Internet, or in person. I’d start there.
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