---J.W., by mail from Carrollton, TX
A. That's a bothersome amount of debt to be carrying but it's far below crisis level. If it was a term loan it could be paid off in only five years with a monthly payment of $1,274.82, assuming an interest rate of 10 percent. That payment would be 15 percent of monthly gross income, which is high by lender standards, but so is your income.
This suggests that you have a spending issue. So before you look into paying off your credit card debt with the proceeds of a new second mortgage loan you should sit down with your husband and make a plan for how you will pay down your debt. This means deciding what you are both willing to give up.
This is not something either of you should approach with shame, blaming, or defensiveness. There are many, many worse events in life that people have to deal with. This isn't a punishment. It is an opportunity for you and your husband to work as a team.
Indeed, many readers are probably arching their eyebrows, thinking "Gee, I could pay off $60,000 of debt in no time if I earned $100,000 a year."
To work as a team you'll have to know where your money is spent. You can learn that with a program like Quicken or Money or by simply recording what you spend. Once you know where you spend your income you can decide, together, what expenses you can forgo or defer until your credit card debt is paid off. You'll still have way more to spend than the average household.
The only difference a second mortgage loan will make is efficiency. If you can borrow that $60,000 you'll start with a lower interest rate. The interest payments will be tax deductible, reducing the cost of borrowing still more.
Here's an example. If you pay the credit cards off directly at an interest rate of 10 percent over five years, you'll pay $76,489 to the credit card companies. It will cost $16,489 in interest. If you take out a second mortgage at 6 percent you'll pay $69,598 to the bank over the same time period, paying $9,598 in interest that is probably tax-deductible. This could reduce your income tax bill by about $2,399 over the period.
So taking out the home equity loan could save you $6,891 (no tax benefit) to $9,290. Your savings will be greater if your credit card interest rate is higher than 10 percent. Either way, the big number is still the $60,000 of debt.
Q. What is your opinion about credit repair counselors and the business in general? Do they really increase your credit scores and are they reputable? Our scores are in the high 500 range. To lower our home mortgage interest rate we need to pull our scores up into the high 600 to 700 range.
---S.M., by e-mail
A. There is no magic in credit repair. Anything that can be done legally you can do on your own at minimal expense. The very best way to repair your credit is to be patient, use it wisely, and pay down your debt. Once you have done that for a few years your psychological position will change and you'll wonder why anyone would want new credit. A good summary of what you can do about credit is available from the Federal Trade Commission at this URL: http://www.ftc.gov/bcp/conline/pubs/credit/repair.htm
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