Rolling card debt into a mortgage? Consider alternatives

You risk your house when you convert debt from unsecured to secured


Credit Smart
Credit Smart columnist Susan C. Keating
Susan C. Keating is the president and chief executive officer of the National Foundation for Credit Counseling. Prior to joining the NFCC, Keating spent 29 years in financial services. She was the highest ranking female CEO of a U.S. bank holding company, serving as president and chief executive of Allfirst Financial Inc., the largest U.S. holding of AIB Group. She currently serves on Bank of America's National Consumer Advisory Council and is a board member of the Council on Accreditation. Keating also participates in the Financial Regulation Reform Collaborative, a nonpartisan group committed to finding solutions for reforming financial services regulation.

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Dear Credit Smart,
Can $19,000 in credit card debt be incorporated in to a mortgage using a VA loan? I am an elderly man with a much younger wife and she is seeking a better form of security. We both have very good credit scores, a great track record and I have a steady income. If possible, how would I accomplish this? Thank you. – Howard


Dear Howard,
Because VA mortgage loans are typically lower than conventional loans, I can understand why this may be attractive to you and your wife. Based on what you say about your credit scores and income you may be able to do this. A mortgage professional at the VA will be able to give you more concrete answers as far as your eligibility, rates, etc., so a call to them would be in order to find out this is indeed a possibility.

However, trading unsecured debt for secured debt brings into question the advisability of taking this action.  This is especially true based on what you say about your wife seeking a better form of security. Rolling credit card debt into a mortgage will probably mean that you and your wife will be dealing with this debt for many years to come. While your debt is substantial, there are other ways to retire your debt that would not involve using your home as collateral or taking 15 to 30 years to pay off.  Much can happen in that period of time that might put your home at risk, which is a far scarier prospect.  

It is true that rolling credit card debt into a mortgage is a common practice to pay off credit card debt, and it may work out very well for you and your wife. But I would urge you to consider other options before you take this step. A spending plan that does not rely on the continued use of credit is a great place to start. Look at your monthly income and expenses and find out exactly where your money is being spent.  Just the act of writing it all down can be an eye-opening experience and become the catalyst for making changes to your spending that will enable you to concentrate on getting rid of your debt on your own. Target the money saved from those changes to attack your debt.

Your next step will be to figure out exactly how much money you have available each month to pay toward your debt that is above the minimum payments on all the cards. Put that dollar amount into your spending plan and consider it a fixed cost until your debt is gone. Then, choose a plan of attack for paying down your debt. You can attack the card with the highest rate first, or the card with the lowest balance. Going after the high-rate card will pay off debt fastest; going after the small balance will give you a quick victory. Whichever card you choose, pay the minimum amounts due each month on all of the other cards and add the extra amount you have to that target card.

If you choose the smallest balance to start, you will quickly begin to see the “snowball effect” this method has on your debt. Once that card is paid off, take the amount you have been sending to the now paid-off card and apply it to your next smallest balance. Because you are paying a fixed amount each month, more is going toward your principal balance, which gets the cards paid off sooner. Use a credit card debt payoff calculator to see exactly how much time and money it will take to retire your debt. If you could pay $500 toward your debt every month, you could probably be paid off in a little less than five years, depending on your interest rates. In five years, that $500 more each month would be true extra security for both of you.

Remember to always use your credit smarts!

See related: Pay off smallest balance first? Or highest rate?

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Published: October 1, 2016

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Updated: 10-25-2016

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