[quote=harvey][quote]Bad idea shifting insecure debt to one that is backed by your primary home.[/quote]
So should they start making extra mortgage payments with their credit card?[/quote]
No. First ,we don’t know if they have credit card debt. But let’s assume that’s the case for argument sake.
If the couple has no savings. Then you have to look at the what’s the worst that can happen if a large financial misfortune happens (such as a job loss)
Option 1. Pay off credit card with heloc. Experience job loss. Ok great. Credit card company appreciates that.
Now what? You need money for food, you need a place to live, and your heloc is now maxed out so you can’t borrow against it anymore. Then what? Borrow against your credit card at 20+APR% to buy food?
Option 2. Continue to make payments on your credit card (adding more principal if possible). Then experience job loss. What’s the worst that can happen if you stop paying your credit card bills?
Ruined credit..Ok fine…But you still have a home to live in, you home isn’t immediately in jeopardy from your job loss, and worst case if you need survival money after maxing out your credit cards, you can at the very end then tap into to HELOC. You’re buying yourself time to get back on track minimizing your risk of losing your home. You’re buying yourself time so that you can put your home on the market and sell at a very very good price if you’re economic situation really doesn’t improve, so that you aren’t a desperate seller that suddenly has worry about NOD’s.
Credit card companies can call all they want to try to collect on you. They won’t go after your 401k and they won’t go after your primary home.There’s a reason why it’s an insecure debt, and why it will more or less get renegotiated at some point in time.
The reason why many people open a HELOC line of credit is specifically for emergency use only. Because when you’re jobless, payless, and need to bridge any sort of short term expense, you won’t be able to borrow any money at a cheap rate in the short term. For someone that is financially strained, they should have that emergency lifeline available at all times.
