Not sure if I'm making a mistake - RE: HELOC loan

[Gibson]

The skinny:

There is a strong possibility of the wife losing her job soon. I have applied for a HELOC from my local bank (also my credit union) to wipe out the all the annoying little (and big) bills we have - lumping them into all one payment. I'm looking at a total of 35k.

Interest rate is good at 5%. Paying minimums on everything would result in about 1200/month. The HELOC would be $400/m. We have plenty of equity in the house, so we're only borrowing what we need. This would help us short term until the wife gets back on her feet, and then we plan on paying double the note once she's back to work.

Now I'm a little worried, because I read some nightmare stories about houses being foreclosed upon because of falling behind on the HELOC. I can certainly handle the $400 on my income alone (along with the mortgage, utilities, etc), but not the 1200, so that's why I think this is a good idea. But now I'm questioning my strategy.

Thoughts?

[Gibson]

Just heard back from the bank, all was approved and ready to go.....

........until they dropped a little caveat at the end. Basically I have to CLOSE 5 ACCOUNTS, which all still have balances on.

3 of the 5 are our oldest in great standing, too. I really do NOT want to close an account I've had over 10 years, yet keep the ones I acquired within the last 2 (although they have no balances on them).

This will ding my score horribly, I fear.

One of the ones they want closed is my Hilton AMEX - which has over 30,000 points. I use this card for hotel stays when necessary and always wind up with freebies from the point system.

I'm strongly second-guessing this loan now.

I'll lose equity, and god forbid I miss a payment - the house is theirs. I miss a credit card payment, I'm ok.

And the fear of the credit drop will screw me out of a possible refinance a year later.

Ugh.

Edit: Been doing the Dave Ramsey "snowball debt" the last few months and notice a slight difference. I won't see anything significant until another year, but after that theoretically it should pay down the balances within 2.5 more years, and then be totally debt free (assuming nothing catastrophic happens). The HELOC is over 10 years. If I applied the Dave Ramsey theory to that, I can pay THAT down just as fast as I would with the CC debt.

Edited April 4, 2012 by Gibson

[willingtocope]

Screw the score drop. Its the "sucker" score, and you shouldn't worry about that one anyway.

The only real problem (and this what your bank is trying to prevent) with having both a HELOC and open CCs, is that its just so easy to find reasons to use the CCs and get yourself right back in the position your in now.

Although I'm seldom in favor of trading unsecured debt (CCs) for secured debt, the HELOC and closing 3 of your 5 cards is probably a good idea. Then, take the CCs out of your wallet and put them in your sock drawer.

[Gibson]

Screw the score drop. Its the "sucker" score, and you shouldn't worry about that one anyway.

The only real problem (and this what your bank is trying to prevent) with having both a HELOC and open CCs, is that its just so easy to find reasons to use the CCs and get yourself right back in the position your in now.

Although I'm seldom in favor of trading unsecured debt (CCs) for secured debt, the HELOC and closing 3 of your 5 cards is probably a good idea. Then, take the CCs out of your wallet and put them in your sock drawer.

Thanks, wtc.

After giving it some thought, I decided against it, even after the bank replied back that I will not have to close any cards.

You're right, its too easy to find reasons to use the CC's up again. I made a post about this several years ago, where I consolidated debt and wound up with a consolidated debt loan and new CC debt.

I still have more lessons to learn here, and rolling debt into more debt isn't how I want to spend the rest of my life.

[Gibson]

.....and now the crap begins.

Just venting here. Wife DID lose her job, did have another gig lined up for about half the salary. We figure we can still get by this summer until hopefully something better comes along for her, plus I can make a few extra $$$$ at work.

Until, on the way home from my wife's last day at work, our daughter informs us her car died. I check it out - blown engine. Get it towed to the house. Have no idea what I'm going to do.

Wake up next day to wife's car with TWO flats. Go to change them and the spare is flat. (Luckily I had two beater tires in the garage to tide me over, but I still need another for a spare)

The following day we had a freak rain/wind storm. Heard a loud bang, went outside in downpour to find a drainspout had collapsed, water pouring into our porch now and coming in the living room. Towels everywhere and wet/dry vac in full force. Managed to keep it dry until the rain stopped. Cheaper to fix it myself than the deductible on my insurance, but not by much (repairing the flashing and drainspouts - ALL of them, since they were all about due).

I feel sick.

[willingtocope]

Sympathies. When it rains, it pours. Not intended to poke fun, but you got to keep smiling, or you'll go nuts.

Is the HELOC still possible?

[Flyingifr]

I would not discount the score drop - with the HELOC they can and probably will balance chase you so in the long run you will have no HELOC and no other lines. Just remember - no banker is your friend - they will screw you in a New York minute if they can.

Edited April 30, 2012 by Flyingifr

[usagi555]

I would not discount the score drop - with the HELOC they can and probably will balance chase you so in the long run you will have no HELOC and no other lines. Just remember - no banker is your friend - they will screw you in a New York minute if they can.

And they'll put sand in the Vaseline when they screw you to boot.

[FightingJ]

Congrats to you but I would really think about it. Believe me I know borrowing from Peter to pay Paul. I have tried for the longest time to hold on cause i was doing the right thing. Suck my savings dry.

Occurred no additional debt since jan 08 paid on time. Suddenly lowering credit limits I would say to intentional go above credit limits. Than increase rates...it does matter you heard the story before.

All the way up to 2010, doing the right thing. Paying down debt so I thought. I never would suggest you too but I was at the end of my rope and FEAR the best thing for me was to default; work on trying to settle. Obviously heard than I thought, I personally did not want to go bk but was told by 5 attorneys to do so. I didn't.

Obviously my income comes intervals as self employed (inconsistent). Of course my credit rate dropped but was temporary. forthmore credit system will have to be completely changed after this.(my opinion). Of course, not certain about your situation but I consider myself insolvent. The best lesson for me has been this because I know I never want to be in debt ever again so credit I don't care about.

I certainly like Dave Ramsey but complete disagree with him on this.

Just remember you are taking what is unsecured debt turning in to secured.

Sorry again probably should have read more about your story. Maybe getting a loan to settle accounts; if not call creditors to see if they will reduce your interest rates on this. If they are in default how long and best let it be.

My 2cents

[FightingJ]

Screw the score drop. Its the "sucker" score, and you shouldn't worry about that one anyway.

The only real problem (and this what your bank is trying to prevent) with having both a HELOC and open CCs, is that its just so easy to find reasons to use the CCs and get yourself right back in the position your in now.

Although I'm seldom in favor of trading unsecured debt (CCs) for secured debt, the HELOC and closing 3 of your 5 cards is probably a good idea. Then, take the CCs out of your wallet and put them in your sock drawer.

Agree with gorilla but cut them all up. Doing Dave Ramsey, So you got step 1 cover right. So now on step 2 which I think 3 should be switched too. (3-6 months reserves).

Curious how much debt we talking about. Do you think you are passionate about never being in debt again. My concern is that you have snowballing the debt for a few months, you more concerned about those Hilton point (will get you in trouble) and your wife may lose her job but right now you focused on the difference in the monthly payment savings. What you going to do with

[Gibson]

Well, when life hands you lemons, you make lemonade. Then you find someone life handed Vodka to and have a party.

The update: I got to thinking how I got by without credit in the past. You find ways.

First, the kids car. Blown engine. Spread the word around work and within a few days scored an engine for $800. $400 of that was donated to me by my brothers - the other $400 came out of the savings. Its guaranteed running by the supplier, so now I'll get to test my mechanical ability. A friend and I will be doing the engine replacement in a few weeks (he's a mechanic on the side). I've googled to death and spent my time on youtube educating myself on how to do this. Worst case scenario, it doesn't work, I get my money back on the engine and work on another mode of transportation for her. For now, she's using our car to get by.

Got a free tire from a craigslist ad - tire was brand new on the rim, just a matter of switching it from his rim to mine - $20. Had it checked, its solid.

Spent the weekend repairing the downspouts and flashing and all that - that set me back about $100, but now I have all new drains and it looks and works a lot better.

Had I gotten the HELOC, I likely would've spent a LOT more on getting the car fixed (or purchased another used car), wracking up debt again. As it stands now, I'm only out some savings and haven't put a dime on the CC's.

[WesleyD]

One tough day. I am sure sunshine is upcoming. You just got to live life fruitfully and forget about the problems at times. But I am not saying you completely forget about your problems. You just did the right thing, venting would lessen the load.

keep smiling!