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Advice on possible consolidation/equity loan (LONG)

Question: I am concerned for my mother’s financial future. Due to me, and my higher educational needs, she has acquired a great deal of debt, and I’m curious about her options. Basically, this is the breakdown:

She makes around 55,000 a year, gets a bonus at xmas around 5K. She JUST got a mortgage (at my urging) to fix up the house, that was essentially falling apart. While the papers haven’t been completely finalized, She’s been told that the loan amount was for 59,000 dollars, and her monthly payments will be 290.00, for 20 years. Not too bad, i don’t think… that part we’re ok with.

Here’s the problem, She’d owned the house outright before, but it was in shambles, and even with all the new stuff she’s done to it, it’s still a small 3 bedroom one bathroom house that’s not in the best neighborhood, so I’d estimate that it’s worth around 60K max. (it was last valued in 1996 at 36,000 but it was in HORRIBLE shape then, now it looks brand new) However, not only does she have this new mortgage, but she’s also 30K in debt due to my school loans, as well as about 13,500 in credit card debt. Her monthly payments are running pretty high for her, just the credit stuff is 1200 dollars, well 1500 as soon as she starts paying for the mortgage. (that’s how new the remodeling is) She is basically 50 thousand in debt. (I’m excluding the mortgage because it’s so cheap and straight forward that we’re not considering that in any refinancing)

So to reiterate the debt is:

Credit cards – 16,290 Monthly payments = 430 Government School loans – 12964 monthly payments = 190 Private ‘Plato’ school loan – 17,317 – monthly payment 250 in *INTEREST* bad bad loan!!! Car loan – $3,000 will pay off march/02 monthly payment 300

So, after going over all her bills, i’m realizing that while she’s not broke, she’s never really going to be able to make payments over the minimum amount and pay the cards and stuff off,(it’d take like 30 years), and she will also pay through the nose for a lot of the debt. Also, she’s rather silly about her bills, and has a tendency to lose things, forget to pay things, so when reading about consolidation loans, the one payment part really seemed ideal for her.

But the question is, can she get a proper loan considering that her house may only be worth exactly what she owes (or worse, less) meaning she has no equity? (we will get it appraised, but i’m not hopefull) We’re in the south, 55,000 is a good living for our town, and i’ve been researching this all morning, so if she could get a good rate, and borrow maybe 30-40K (possibly less if we can get some of the creditors to make a deal) she could easily make the monthly payments of 400-800 dollars and pay it off in 10 years. She’s been at the same job for 8 years, lived in the same house all her life….

Also, as i stated earlier, she loses bills , and gets silly about paying them, so while she’s had no problems in the last 2 years, before that she has a lot of late payments. and I mean a lot. However, now that her credit’s getting better she’s getting a lot of credit offers. Wells fargo offered her some sort of consolidation loan…. so her credit can’t be too terrible…

Any ideas on where to begin? While i realize that you guys are not professionals, I’ve read some wonderful advice in back posts, but oddly i couldn’t find anything on debt consolidation or home equity loans, unsure why…

So is it possible for her to get a sizeable loan (40K or so) with little or no equity based on her income, and using the house as collateral? It seems obvious that she’d save a lot of money doing it this way… but The debt consolidation places I’ve checked seem to be only for people about to declare bankruptcy, and she’s not near that. She can pay her bills fine, she just won’t be able to save or do much else. But with a loan payment cutting her current amount in half or by a third, she’d be able to do a lot more, and be debt free. Massive amount of money could be saved….. So is anything possible? any advice? should we go to some sort of credit union, or web sites, or does anyone have any advice on any way to get her debts paid off….

Sincerely, thanks in advance, I hope someone can help =]

Answer: For starters, what do you mean, your “higher educational needs?” Higher education is a privilege and if you incurred debt getting yours then that was a choice, not a necessity.

But nevermind that. Sure. Start with a credit union. That’s probably your best bet for a home equity or other type of consolidation loan. If she could do something to refinance the credit card debt she’d be way ahead. But on a home equity loan she’s obviously not going to be able to borrow more than the difference between the indebtedness the house is already carrying subtracted from the appraised value.

Missing from your numbers is the amount you’re contributing toward paying off the student loans. Since fully 3/5 of the debt is yours, the obvious answer to your mother’s financial problems is for you to not only take over those loan payments immediately but also to begin to make a modest contribution every month toward her expenses. Paying off the credit card and car debt on a $55K income shouldn’t be that big of a problem once she has the school loan bills off her hands.

She went way out on a limb to help you out after you were already an adult and responsible for your own debts. Sounds to me like it’s now payback time and then some.

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Filed under: Home Equity Loan