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So You Have A Bunch Of Credit Card Debt AND A Bunch Of Equity In Your Home? |
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![]() I ran into a friend a few weeks ago who told me about some of the financial moves he made over the past few years and how glad he was that he made them. While I don't know the particular details of his situation, the following will give you a general idea of what we were chatting about and might be some actionable information for you or someone you know. A few years ago he and his wife found themselves in this situation... [1] They owned a home with quite a bit of home equity. [2] They had a good bit of credit card debt. Many homeowners are in scenario #1 right now -- the median sales price increased by 10% or more for multiple years in a row in Harrisonburg and Rockingham County. If you have owned your home for five or more years you likely have quite a bit of equity in your home. Some homeowners are also in scenario #2 -- with a good bit of credit card debt on which they are paying interest every month. If you're carrying a balance on a credit card you are often paying 20% or more as an interest rate on that debt. What did they do when they found themselves in this situation? They tapped into the equity in their home and paid off the credit card debt. While this didn't immediately wipe out any debt, it moved the debt from a credit card (likely with a 20% or higher interest rate) to a mortgage (with a drastically lower interest rate)... which saved them significant interest costs every month... allowing them to start paying off their debt more aggressively. A few caveats and notes... [1] Certainly, it was an even better time to do this a few years ago when mortgage interest rates were below 4%. But... current mortgage interest rates of 7% are still drastically lower than a 20% credit card interest rate. [2] You'll need to consider whether you are refinancing your entire mortgage into a larger mortgage -- or whether you are opening an equity line on your home and keeping your current mortgage. If your current mortgage has a super low (below 4%) mortgage interest rate you probably won't to try to keep that if you can. This is not one size fits all financial advice here... everyone's situation is unique... but if you a homeowner with significant equity in your home, and you are carrying credit card debt from month to month... you might want to explore your options for restructuring that debt to lower your interest costs. Nobody told my friend to do this - he figured it out himself - and wondered why nobody had told him. So, here's me, telling you. I'm not a financial advisor, but I'm happy to talk any of those sorts of scenarios through with you and to point you to other resources that might be of help to you. Recent Articles:
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Scott Rogers
Funkhouser Real
Estate Group
540-578-0102
scott@funkhousergroup.com
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Commonwealth of Virginia
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