Dear Dave: I make $48,000 a year, and I have $35,000 in credit card debt. I owe $25,000 on my home, and I was thinking about taking out a loan against my house to pay off the credit cards. Is this a good idea? — Mike
Dear Mike: I would never advise anything like this, unless it’s to avoid bankruptcy. Here’s the problem with that kind of plan. Most people who do that kind of thing don’t change their financial habits. In fact, they end up with a new mortgage and new credit card debt somewhere down the line.
You need to start building a track record of paying off debt. Cut up the credit cards, slash your spending, and start living on a tight, written, monthly budget. Prove to yourself that you’re not going to take out a mortgage and turn around and run up a bunch of new credit cards.
I want to see you not take on any new debt and reduce that $35,000 credit card bill dramatically over the next six months. If you can knock out half of it in a year, you can take care of the other half in another year or less. Then, you wouldn’t need a second mortgage!
