How do I consolidate debt when I'm unemployed with lots of equity?
March 5, 2024 7:04 AM Subscribe
I own a house outright and it is worth about $700,000. I recently had some large home repairs done which I put on credit cards for points and had planned to pay off using a HELOC. Got laid off in the inbetween month and now I'm stuck with the debt.
I would like to get some kind of debt consolidation loan to get it down from the ridiculous 24% interest it's currently amassing, but with no income I don't know if that's possible.
I'm receiving about $1,200 a week in unemployment benefits and have about $100,000 in lquid cash.
What are my options here?
I could obviously just pay it off with cash on hand. but that cuts my runway for getting a new job by more than half.
I have all faith I will have a new job within the year, but don't want to be living in constant anxiety about money until then.
My total monthly expenses are about $4000 (property taxes, insurance, utilities, food, ect)
I would like to get some kind of debt consolidation loan to get it down from the ridiculous 24% interest it's currently amassing, but with no income I don't know if that's possible.
I'm receiving about $1,200 a week in unemployment benefits and have about $100,000 in lquid cash.
What are my options here?
I could obviously just pay it off with cash on hand. but that cuts my runway for getting a new job by more than half.
I have all faith I will have a new job within the year, but don't want to be living in constant anxiety about money until then.
My total monthly expenses are about $4000 (property taxes, insurance, utilities, food, ect)
I could obviously just pay it off with cash on hand. but that cuts my runway for getting a new job by more than half.
At present you have a slab of high-interest credit card debt and a larger slab of cash.
If I were in your position and that cash were my runway, then given that I can't actually know whether I'll need the whole runway, I'd pay off the credit card debt straight away. Then I'd have a much smaller slab of cash to be sure, but I'd also have plenty of scope for running the credit cards up again.
That way, my runway now consists of whatever cash is left over plus the ability to start running up the cheapest debt I can organize if I were to end up needing more than the leftover cash will cover. The only interest I'd then be paying would be whatever accrues after I drain my cash reserve to a genuinely uncomfortable low and start going back into debt.
Even in the absolute worst case, where my local credit union refuses to extend me a HELOC and I'm forced to fall back on the credit cards again, that's going to cost me way less than servicing the debt that exists right now.
posted by flabdablet at 7:33 AM on March 5, 2024 [33 favorites]
At present you have a slab of high-interest credit card debt and a larger slab of cash.
If I were in your position and that cash were my runway, then given that I can't actually know whether I'll need the whole runway, I'd pay off the credit card debt straight away. Then I'd have a much smaller slab of cash to be sure, but I'd also have plenty of scope for running the credit cards up again.
That way, my runway now consists of whatever cash is left over plus the ability to start running up the cheapest debt I can organize if I were to end up needing more than the leftover cash will cover. The only interest I'd then be paying would be whatever accrues after I drain my cash reserve to a genuinely uncomfortable low and start going back into debt.
Even in the absolute worst case, where my local credit union refuses to extend me a HELOC and I'm forced to fall back on the credit cards again, that's going to cost me way less than servicing the debt that exists right now.
posted by flabdablet at 7:33 AM on March 5, 2024 [33 favorites]
Anonymous, have you tried to get the HELOC? I would still talk to your bank or credit union about the HELOC before you pursue anything else. Owning a house outright at that value plus your cash is a significant asset pile. You said, "I don't know if it's possible." So, go find out.
posted by bluedaisy at 7:34 AM on March 5, 2024 [14 favorites]
posted by bluedaisy at 7:34 AM on March 5, 2024 [14 favorites]
If your credit is excellent, you might still be able to qualify for a zero percent interest balance transfer card for 18-21 months. You'll have to pay a small percentage of the balance as a transfer fee, and you might not qualify for a high enough limit to fit the whole debt, but as long as you make minimum payments each month, you won't be charged any interest. The credit card company is gambling that you'll keep doing whatever led you into this situation and then they get to own your debt when your credit is no longer good enough to repeat the trick. But that doesn't sound like you. We did this during early COVID to increase our cash cushion in case of ???; just balance transferring a month or two of credit card spend instead of paying it off, and holding the extra cash for a year or two, and it worked out very well. You do have to sit on the money but that doesn't seem like it will be a problem.
posted by Kwine at 9:09 AM on March 5, 2024 [6 favorites]
posted by Kwine at 9:09 AM on March 5, 2024 [6 favorites]
I agree with Kwine that you should try to get a zero % (or at least a lower rate) transfer with another card. How much cc balance are you carrying?
Ideally, you could transfer to the lower rate cc and keep your liquid cash for a real emergency. Not to be a downer, but you don't know how long it will take to get another job. For that same reason, I also would not pursue the HELOC. It's one thing to default on cc's but I wouldn't risk affecting my home for this.
posted by jraz at 10:42 AM on March 5, 2024 [2 favorites]
Ideally, you could transfer to the lower rate cc and keep your liquid cash for a real emergency. Not to be a downer, but you don't know how long it will take to get another job. For that same reason, I also would not pursue the HELOC. It's one thing to default on cc's but I wouldn't risk affecting my home for this.
posted by jraz at 10:42 AM on March 5, 2024 [2 favorites]
You own your home outright, and your passive income while not working at all exceeds your monthly expenses by $800/month. You are in a position to not pay anyone interest, ever again. If your credit card balances are less than your savings (you didn't say how much you owe), just pay them off. Save that $800 each month and don't spend any extra money unnecessarily until you find work.
If anything goes to hell, you can use your credit to deal with it. But don't use credit when everything is fine and you don't need to, because that's throwing money away.
posted by fritley at 1:18 PM on March 5, 2024 [3 favorites]
If anything goes to hell, you can use your credit to deal with it. But don't use credit when everything is fine and you don't need to, because that's throwing money away.
posted by fritley at 1:18 PM on March 5, 2024 [3 favorites]
call around smaller banks and mortgage brokers. usually someone has a loan/mortgage program that doesn't require the boxes to be checked the way a typical mortgage originator would. you'll pay more, but less than a credit card rate.
posted by mullacc at 1:49 PM on March 5, 2024
posted by mullacc at 1:49 PM on March 5, 2024
Just want to emphasize what others have said upthread about balance transfers and other ways to manage debt and income. A credit card is a signature loan and no matter how high you run it or how bad you default it, they can’t take your house. A HELOC is a collateral loan on your house and if you default, they will take your house. Pursue all other avenues first.
posted by toodleydoodley at 2:00 PM on March 5, 2024 [2 favorites]
posted by toodleydoodley at 2:00 PM on March 5, 2024 [2 favorites]
your passive income while not working at all exceeds your monthly expenses by $800/month. You are in a position to not pay anyone interest, ever again.
Unemployment insurance is not passive income; it's a (quite) time-limited government benefit. It's also taxable!!! Hopefully at a relatively low rate, but OP is not clearing $800/mo for savings.
There's a legit judgment call to be made here, OP, since it involves guessing about what the future may hold, but definitely look for ways to lower your interest rate to a more manageable one before expending your dry powder. You're particularly vulnerable right now, being unemployed. You never know what might happen in the interim. House fire? Serious illness (how's your insurance situation)? Family emergency? $100K is a decent cushion. If you owe $25K on the cards and can't get the rate down on any of it, then you could reasonably pay them off with cash. But if you'd find yourself getting below, say, $50K (about a year's expenses for you), I'd hold off.
Finally, and I say this only because to do personal finance you have to be honest with yourself about stuff, not to berate you (we all make mistakes and capitalism is eager to pounce!), you didn't put the renos on the cards "for points." That would only be true if you had dedicated cash you knew you were comfortable paying the amount off with that month. Instead, you were planning on borrowing against equity to pay it off (trading unsecured for secured debt, a questionable move), a loan you hadn't even secured yet, and now you don't feel great about using your actual cash reserves to cover it. So...in future, you might want to keep in mind that although you're doing great, capitalism is happy to pounce on you for getting too comfortable, too! Next time, delay the renos until you have the cash ready to go, or at least know you can carry the interest.
posted by praemunire at 3:04 PM on March 5, 2024 [2 favorites]
Unemployment insurance is not passive income; it's a (quite) time-limited government benefit. It's also taxable!!! Hopefully at a relatively low rate, but OP is not clearing $800/mo for savings.
There's a legit judgment call to be made here, OP, since it involves guessing about what the future may hold, but definitely look for ways to lower your interest rate to a more manageable one before expending your dry powder. You're particularly vulnerable right now, being unemployed. You never know what might happen in the interim. House fire? Serious illness (how's your insurance situation)? Family emergency? $100K is a decent cushion. If you owe $25K on the cards and can't get the rate down on any of it, then you could reasonably pay them off with cash. But if you'd find yourself getting below, say, $50K (about a year's expenses for you), I'd hold off.
Finally, and I say this only because to do personal finance you have to be honest with yourself about stuff, not to berate you (we all make mistakes and capitalism is eager to pounce!), you didn't put the renos on the cards "for points." That would only be true if you had dedicated cash you knew you were comfortable paying the amount off with that month. Instead, you were planning on borrowing against equity to pay it off (trading unsecured for secured debt, a questionable move), a loan you hadn't even secured yet, and now you don't feel great about using your actual cash reserves to cover it. So...in future, you might want to keep in mind that although you're doing great, capitalism is happy to pounce on you for getting too comfortable, too! Next time, delay the renos until you have the cash ready to go, or at least know you can carry the interest.
posted by praemunire at 3:04 PM on March 5, 2024 [2 favorites]
I agree with those saying to pay off the credit card debt using cash and get rid of not only the interest cost but the monthly drain from payments that will drain your cash sooner than just paying off the balance anyway. If the worst happens, you still have the credit card to fall back on in an emergency.
Before you do that, though, talk to a finance broker about what your options may be. Given your high asset base, you may well be able to keep your cash and get rid of the card debt, although you'll still have (much lower) monthly payments to make. That would extend your runway and put you in a better position long-term.
posted by dg at 3:40 PM on March 5, 2024 [2 favorites]
Before you do that, though, talk to a finance broker about what your options may be. Given your high asset base, you may well be able to keep your cash and get rid of the card debt, although you'll still have (much lower) monthly payments to make. That would extend your runway and put you in a better position long-term.
posted by dg at 3:40 PM on March 5, 2024 [2 favorites]
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posted by Sweetie Darling at 7:07 AM on March 5, 2024 [2 favorites]