Sally Herigstad is a certified public accountant and the author of “Help! I Can’t Pay My Bills: Surviving a Financial Crisis” (St. Martin’s Press, 2006). She writes “To Her Credit,” a weekly reader Q&A column about issues involving women, credit and debt, for CreditCards.com, and also wrote for MSN Money, Interest.com and Bankrate.com, and has guested on Martha Stewart Radio and other programs.
Dear To Her Credit,
My husband and I got a credit report when we were trying to get a cash-out refinance for our home. The reason for the refinance was to pay off $11,000 in credit card debt.
When we got our credit reports, I discovered my husband had a credit card I knew nothing about, with a balance of $16,000.
This is devastating to our marriage. I don’t feel like I can trust him anymore after he hid that from me.
Altogether, we now owe $27,000 in credit card debt. Our total student loan debts are over $30,000. We don’t really have any other significant assets, except $80,000 in our 401(k) plans.
Should we sell our home and use the equity of about $75,000 to pay off all our credit card and student loan debt? – Priscilla
You have two separate but intertwined issues: First, how do you deal with the discovery that your husband was hiding a credit card from you – one with a hefty balance? Second, should you sell your house to pay off all your debts and get a fresh start?
The financial infidelity issue
I can’t tell you how to deal with discovering the secret credit card. I don’t know how long you have been together, how strong the relationship is otherwise, or how well the two of you usually communicate.
I would urge you to try to find out what happened before you assume the worst. Although secret credit card records sometimes show evidence of a double life or perhaps a gambling problem, I wouldn’t jump to those conclusions.
The truth may be far less dire. Maybe he had the card before you were married, or perhaps he got it for business expenses and didn’t think it was a big deal. He probably didn’t expect the balance to get out of hand. By the time he couldn’t keep the balance paid off every month, he may have been too embarrassed to say, “Oh, by the way, I have this credit card balance that keeps growing.”
An explanation like that wouldn’t be a great excuse, but it might be something the two of you could accept and resolve. Either way, it’s time to sit down and have a serious discussion.
I can understand the feelings of betrayal, however. According to a January 2018 CreditCards.com poll on financial infidelity, 31 percent of respondents said keeping a secret account from a spouse or partner is worse than physical cheating.
The home-sale issue: Profits may be less than you think
As far as selling your house goes, wanting to pay off your debts is great. However, have you thought about everything you would lose if you sold your house to do it?
You may get less equity from your house than you think by the time you pay real estate commissions, fixing-up expenses and, in some states, even sales tax. It’s easy to have 10 percent of the selling price in total expenses before you’re done. Then you pay off your debts, and you don’t have a house!
A house that is gaining in value and on which you are paying down the principal is, as a general rule, a major asset. Unless you have some other reason for selling, such as moving out of the area or downsizing significantly, getting rid of your house to pay off credit card debts is seldom a good idea.
Other debt-reduction alternatives
Instead of selling your house, consider these options:
- Working more hours (one or both of you) to make extra money.
- Selling an asset, such as a motorcycle or extra vehicle.
- Creating a no-frills budget that you can get by on temporarily.
- Transferring high interest debt to lower interest options, such as a home equity line of credit or lower-interest credit card.
- Making a plan with some combination of making more money, selling assets or lowering expenses, and following that plan until your debts are under control.
If you think you and your husband need more help, please visit a credit counselor. I recommend a nonprofit agency affiliated with the National Foundation for Credit Counseling or the Financial Counseling Association of America. They can help you look at your options and decide the best way to get your financial lives together back on track.
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