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Debt Consolidation
Is it possible to alleviate your monthly debts without having to sell your home or refinance with another 30 year mortgage even if you have significant mortgage balance and credit card debt?
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4 Replies
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April,you are going to need equity in your home to get a second mortgage or tap into cash to pay your outstanding debts.
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Traditionally, you would be looking at a HELOC or 2nd mortgage in the scenario you mentioned. If this were my client, I would talk to them about a “long-game” scenario. If they have enough equity to lower or eliminate the debt with the highest monthly payments, then you have options. The key to this is financial discipline once the initial transaction is completed. The 1st transaction will be a C.O. refi with a 30-year term. This will keep the new monthly payment as low as possible. The money the borrower will save monthly from a reduced monthly out-of-pocket expense will initially be used to supplement the slight increase in the monthly mortgage payment. The benefit is or should be, that their credit score will rise over the next 12 months. If there are additional proceeds left from the reduced monthly out-of-pocket expenses, those funds need to be allocated toward smaller debts being paid off during the following 12 months. After 12 months, the borrower has an increased credit score, which means you should be able to get them into a Conventional loan with no MI (instant savings) and you now look at two options for them. Either one more C.O. refi to cover a rate buydown or a traditional R&T. I usually suggest an R&T with a reduced term to 15 years and in our current economy, a rate buydown. The 15-year term will get them a lower interest rate, the Conventional loan saves money, (No MI) as I mentioned earlier, and the final option of the buydown drops the rate even further. Now your borrower has reduced their monthly out-of-pocket expenses, and is in a Conventional loan, with a shorter term, usually with no pre-payment penalties. Hopefully, the borrower has learned their lesson and stays within their financial means moving forward.
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Hi Gustan and Dustin. Thank you for all this information, it enlightened us.
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Without a doubt, it is also quite feasible, even when mortgage and credit card arrears are extensive, to reduce monthly repayments on debt without losing ownership interest on the property in question or without the need to re-finance into another 30 years’ mortgage. Among the policies to be considered develop the following:
Debt Consolidation Personal Loans: A personal loan can pay off many high-interest credit cards with lower monthly rates, lessening the burden of repayments.
Home Equity Loan or HELOC: If the property has some equity, a Home Equity Line of Credit (HELOC) can fund debt payments, offering higher interest rates than these options.
Credit Counseling Professional Help: Some credit counseling organizations can help to create a feasible budget and negotiate with creditors for better interest rates and repayment terms.
Debt Management Plan (DMP): A DMP is also available to credit counselors. It allows one to submit a monthly payment to that agency, covering all creditors.
Creating a budget and limiting unnecessary expenditures Establish a budget: Establishing a budget and analyzing expenditures may assist in finding ways to reduce costs in specific areas. This will, in turn, free up some cash that can be used to offset the several available debts.
Minimize Desirable Expenditure: It may be advantageous for your situation if expenditures such as dining out or subscription services are minimized so that you have more resources available to address your outstanding debts.
Increase Revenue
Supplemental Employment: Seek and explore options to earn additional income, which may involve freelance work, a part-time job, or even disposing of items that are no longer in use.
Renting a Room: If all else fails, consider renting or subletting a spare room in the house to generate more income toward debt repayment.
Contact Your Creditors
Reduce Interest Rates: Consider calling your credit card company to let them know you want to review your account and see if there are any opportunities to lower the existing rates. Others may offer hardship programs.
Making Payments in Parts: Ask your lenders if they can stretch the total amount out and allow you to make smaller, convenience-sized payments gradually.
Debt Settlement How Much Debt Settlement.
Ways to recover: These strategies are worth mentioning. Suppose you are in a really bad financial position. In that case, there is the possibility of using a debt settlement. That’s because it requires persuading the lenders to agree to a lower amount, much less than what is owed. But be careful about this because this strategy causes a credit score loss.
Seek Help from a Financial Advisor for Professional Guidance. Try to get in touch with some professional with the right training who can give you approximate positions and provide recommendations that specify how the debt will be dealt with in the future.
Even with such a huge mortgage or credit card debt, numerous possible strategies could reduce monthly outlays without having to dispose of the property or obtain a new loan mortgage. It is sufficient to assess the current state of affairs, consider the available alternatives, and opt for the most appropriate strategies for the anticipated result and the existing circumstances.