Using your home to get rid of $80,000 in credit card debt

Bankrate.com’s Steve Bucci is its Debt Adviser. He answers a question from someone with an $80,000 credit card bill.

Dear Debt Adviser, I am considering refinancing my mortgage. My plan is to take cash out in order to pay off my credit card debt. I owe $80,000 on credit cards, which is actually more than the $63,000 I owe on the house. Would this be a well-advised move, in your opinion? I can very easily handle the new monthly payment. With the savings from not making credit card payments I can make additional payments on the mortgage principal. My current mortgage has 11 years remaining, and the new mortgage would be for 15 years. So in other words, I'd be paying my house off in about the same time frame, anyway. I appreciate your advice. -- Robert

Before he answers, Mr. Bucci has to pick himself up from the floor. Here are the highlights from his response.

Dear Robert, Before I answer your question, I must make a comment: $80,000 on your credit cards?! Because I am the Debt Adviser, I can't help but address your $80,000 in credit card debt first. That is a huge amount of debt. Before you do anything, I want you to seriously analyze how you acquired so much debt. Before doing anything, you must be very sure that you can live day to day without racking up another $80,000 in new debt after any refinancing.

First, remember that the refinancing will not really pay off anything. It will just move your debt around. Furthermore, it could end up hurting you ultimately. That's because your $80,000 in credit card bills will be converted from an unsecured debt to a mortgage secured by your home.

The real message here is that Robert could lose his home over a debt that could be cleared in bankruptcy if everything hit the fan. But there are refinancing options.

Let's say you decide to do a traditional 15-year fixed-rate refinance of your existing mortgage with a cash-out option to pay off the $80,000 credit card debt. If so, I would encourage you to organize your budget so you can repay the loan in five to seven years. As an alternative, depending on the current rate of interest on your existing mortgage loan, you might consider using a home equity line of credit, or HELOC, instead of obtaining a new, larger first mortgage. The HELOC interest rate would likely be lower. You should be able to pay off the debt in a shorter period of time. That would save you on interest payments. It will also reduce the time period where you'll be most at risk to financial surprises like illness or a layoff. My experience is that as soon as you make yourself vulnerable to a problem, it shows up.

A traditional refinance may be the best option if your goals are to: first, get a lower rate on your primary mortgage, and second, pay off the credit cards. However, if you already have a fairly low interest rate on your mortgage, a HELOC might be the better option. I want you to lose your debt, not your home. So here's an added note of caution: You are taking on added risk with either a HELOC or a mortgage. You are moving a rather large debt from unsecured terms -- credit card accounts -- to a secured loan using your home as collateral. If for any reason you default on your new loan, your home is at jeopardy. I've seen enough unexpected things happen to otherwise smart people because they took on a risk they didn't understand.

There is also a tax risk. If the unthinkable should happen and you go into foreclosure, the $80,000 used to pay off your credit cards would not qualify for debt forgiveness under the Mortgage Forgiveness Debt Relief Act. The result: You would owe income taxes on the $80,000 when you can least afford it.

 Read the full article.  To ask a question of the debt adviser, go to Bankrate.com.

For your next title order or

if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

Stephen's Title Agency, LLC

165 Passaic Avenue, Suite 101

Fairfield, NJ 07004

Tel 973-227-4724 - Fax 973-556-1628

E-mail Stephenstitle AT comcast.net - www.stephenstitle.com

From Bankrate.com - Five tips on how to avoid identity theft

Five tips on how to avoid identity theft. We’ve had it happen to us and can testify how it affects your life.

“Everyone makes mistakes. After all, it's only human to goof up now and then. But if you want to protect yourself from identity theft and other financial scams, you need to play it safe, be smart and avoid simple mistakes that can expose your financial data and identity to fraudsters.”

Here are the five tips:

1. “Never carry a Social Security card, whether it's your own or your spouse's, parent's, child's or other family member's, in your wallet.”

While there’s no doubt you'll need your SS number to apply for a job, get a mortgage “most people don't need to give out their Social Security number on a day-to-day basis.”

“Another tip: Don't write a Social Security number on a scrap of paper and carry that in your wallet instead of a Social Security card. If your wallet is lost or stolen, a person of criminal intent can easily guess what those nine digits are.”

2.  Don’t yak on a cell phone in public.

“Elevators, public streets, restaurants, airport terminals -- these are but a few of the public places where Linda Foley, founder of the Identity Theft Resource Center in San Diego, says a private conversation on a cell phone can be easily overheard by someone who can memorize or write down any financial information that's disclosed.”

3.  Be wary of Internet friends.

“[N]ot all of the people you may encounter are who they say they are. Some of them are scammers on the prowl for information.”

"You share where you were born and when you were born, now I know where to get your birth certificate," Foley says. "I can take that and get a duplicate Social Security card and with that I can get a driver's license and with that I can get a passport and with that I can travel anywhere and be you as much as I want."

4. Keep financial information off of your resume.

Posting your resume on line?

“Never put your Social Security number, birth date, place of birth or other financial information on your resume. Be wary of scams that use e-mail messages -- "We loved your resume, and we need your Social Security number to do a background check so we can hire you," is one example -- to prey on unemployed people.”

5. Pass up that free offer in exchange for personal information.

"Be suspicious of offers that seem too good to be true, regardless of how or where they're presented. That free T-shirt may be a lure to entice you to fill out an application for a credit card that doesn't exist. Once you complete the application and get the T-shirt, those data are out of your control.”

You can read the full article on Bankrate.com.

If you have questions about what you see here, contact

Stephen M. Flatow S

Stephen's Title Agency, LLC

StephensTitle AT comcast.net

Good news for credit card users

By the time you are reading this, rules for credit cards will have changed. “Newly purchased gift cards won't expire as quickly, and late fees on credit card payments won't be as punishing."

“The final stage of consumer protections signed into law this year go into effect Sunday. Yet they only curb select practices; other fees and charges still abound.”

Here are some of the new safeguards, but remember, you can still get burned.

Penalty fees:

New protection:

Fees for late payments and other transgressions will be capped to the amount of the violation, up to $25. And, a single violation can no longer result in more than one fee.

Gaps to watch: Technically, there isn't an outright ban on penalty fees higher than $25.

“There aren't any caps on other charges. And not surprisingly, many issuers hiked fees for balance transfers, foreign transactions and cash advances in the past year.”

Rate hikes:
New protection:

“Banks must review a rate hike every six months to decide whether the increase is still warranted. If the factors that prompted the hike are no longer applicable, the rate must be lowered.”

This rule applies to hikes dating to Jan. 1 of last year, when banks began raising rates in anticipation of the new regulations.

Gaps to watch: 

“Even if a bank finds that a rate should be lowered, the reduction doesn't have to restore the previous interest rate.”

Gift cards:

Expiration dates

New protection:

“Gift cards issued after Aug. 22 must have expiration dates that are at least five years from their date of purchase.”

Gap to watch:

“The rule doesn't apply to certain gift cards, such as those issued as part of a rewards or loyalty program.”

Inactivity and service fees:

New protection:

“Such fees can only be charged if the card hasn't been used for at least one year. After that, only one fee can be charged each month.”

Gaps to watch:

“There's no cap on inactivity or service fees. So even though you can only be assessed one monthly fee, it could quickly eat away at a card's value if it's not used.”

It's a first step, some one say a small one, others a big one, in giving consumers more protection.  Let's see what Congress does next.

Read the Associated Press article.

If you have questions about what you see here, contact 

Stephen M. Flatow 

Stephen's Title Agency, LLC

www.stephenstitle.com

StephensTitle@comcast.net