The Money Coach
  • About
    • Meet Lynnette
    • Media Kit
  • Get Help
    • Money Coach University™
    • Books
    • Financial Coaching
    • Speaking
    • The Money Coach Recommends™
  • Contact
  • Building Wealth
  • Investing
  • Credit Scores
  • Student Loans
  • Paying for College
  • Saving Money
  • Real Estate
  • Credit Card Debt
No Result
View All Result
The Money Coach
  • About
    • Meet Lynnette
    • Media Kit
  • Get Help
    • Money Coach University™
    • Books
    • Financial Coaching
    • Speaking
    • The Money Coach Recommends™
  • Contact
No Result
View All Result
The Money Coach
No Result
View All Result

I Am Living Paycheck to Paycheck. What’s the Best Way to Clear My Debt?

Lynnette Khalfani-Cox, The Money Coach by Lynnette Khalfani-Cox, The Money Coach
in Debt
Reading Time: 2 mins read
I Am Living Paycheck to Paycheck. What’s the Best Way to Clear My Debt?
8
SHARES
141
VIEWS
Share on FacebookShare on Twitter

Q: I have $33,000 worth of unsecured credit card debt. I’m not late on any payments, but I am living paycheck to paycheck. What’s the best way to clear my debt? Should I refinance my house or consider a debt consolidation company.  

A: I don’t think going to a debt consolidation company is the best strategy. And using a home equity line or refinancing your home may not be a smart move either, depending on why you got into debt and what your current situation presently looks like. When people ask me if they should use home equity to pay off credit card debt, here is what I tell them.

Using a Home Equity Loan

Getting a home equity loan or an equity line of credit can be a smart strategy for a few reasons. The interest rate on home equity loans (currently in the 6% range) is far less than what you’re probably paying on your credit cards (likely in the 15%-plus range). Additionally, the interest on home equity loans is tax deductible up to $100,000; the interest levied on your credit cards is not. Finally, from a credit-scoring standpoint, mortgage debt is treated more favorably than credit card debt, so converting that consumer debt is likely to positively impact your FICO score, by helping you reduce your credit card utilization rates.

A Strong Caution To Those Using Home Equity Loans to Pay Off Credit Card Debt

If you decide to consider this strategy, I have to issue a very serious word of caution: Don’t pay off those credit card bills, and put your home at risk with an equity loan if you’re just going to go back out and run up your charge cards again. The decision to take out a home equity loan is one that should not be made lightly. I believe that you should only use your home equity to pay off debt under two circumstances:

1)   You got into credit card debt because of what I call “The Dreaded D’s: (downsizing, divorce, death (i.e. a main winner in the family died), disability, disease, or some other disaster, like a business failure or lawsuit); and

2) The situation that threw you into debt has now been rectified. (For instance, you were downsized, but now you have a job, or you faced a disease or a disability, but now you’ve bounced back from your medical problems).

If you got into debt for other reasons of your own doing, such as over­spending, and if you haven’t learned how to get those impulses under control, I urge you to refrain from tapping the equity in your home to pay off credit card debt. I’ve heard heart-breaking stories of people who paid off their credit card debts by converting those obligations into mortgage debt – only to keep spending, not change their financial habits, and ultimately wind up losing their homes in foreclosure. I don’t want this to happen to you.

Tags: paycheck to paycheck
Previous Post

How Can I Re-Establish Credit With Bad Credit? No One Will Give Me a Credit Card.

Next Post

I’m Scared To Open A New Credit Card Account. Help Me Money Coach!

Related Articles

Debt Snowball Vs. Debt Avalanche: Which is the Best Approach to Pay off Debt?
Debt

Debt Snowball Vs. Debt Avalanche: Which is the Best Approach to Pay off Debt?

by Guest Blogger
FDCPA
Debt

How To Deal With Out of State Debt Collectors

by Lynnette Khalfani-Cox, The Money Coach
debt collectors
Debt

5 Tips to Protect Your Paycheck from Wage Garnishment

by Lynnette Khalfani-Cox, The Money Coach
get out of debt
Debt

The Pros and Cons of Paying Off Someone Else’s Debt

by Lynnette Khalfani-Cox, The Money Coach
jail debtors prison
Debt

4 Crazy Times People Got Thrown In Jail Because of Their Debts

by Lynnette Khalfani-Cox, The Money Coach
debt detox
Debt

The 5-Step Debt Detox That Improves Your Finances and Health

by Lynnette Khalfani-Cox, The Money Coach
Lynnette Khalfani-Cox How to budget better in 2015
Debt

How To Get Out of Debt and Get Financially Fit Now

by Lynnette Khalfani-Cox, The Money Coach
debt
Debt

5 Horrible Things About Debt That Have Nothing To Do With Money

by Lynnette Khalfani-Cox, The Money Coach
medical debt
Debt

Dealing with Old Medical Debt

by Lynnette Khalfani-Cox, The Money Coach
Next Post
Lynnette Khalfani-Cox

I'm Scared To Open A New Credit Card Account. Help Me Money Coach!

Please login to join discussion

About

Lynnette Khalfani-Cox, The Money Coach®, is a personal finance expert, speaker, and author of 15 money-management books, including the New York Times bestseller Zero Debt: The Ultimate Guide to Financial Freedom.

Lynnette has been seen on more than 1,000 TV segments nationwide, including television appearances on Oprah, Dr. Phil, The Dr. Oz Show, The Steve Harvey Show, Good Morning America, The TODAY Show and many more.

Quick Links

  • Money Coach University
  • Lynnette's Personal Site
  • The Money Coach Corporate Site
  • Video Portfolio
  • Privacy Policy

All information on this blog is for educational purposes only. Lynnette Khalfani-Cox, The Money Coach, is not a certified financial planner, registered investment adviser, or attorney. If you need specialty financial, investment or legal advice, please consult the appropriate professional. Advertising Disclosure: This site may accept advertising, affiliate payments or other forms of compensation from companies mentioned in articles. This compensation may impact how and where products and companies appear on this site. AskTheMoneyCoach™ and Lynnette Khalfani-Cox, The Money Coach® are trademarks of TheMoneyCoach.net, LLC.

©2009-2022 TheMoneyCoach.net, LLC. All Rights Reserved.

No Result
View All Result
  • Meet Lynnette
  • Money Coach University™
  • Books
  • Financial Coaching
  • Speaking
  • The Money Coach Recommends™
  • Media Kit
  • Contact

©2009-2021 TheMoneyCoach.net, LLC. All Rights Reserved.

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In

Add New Playlist