“I’m not smart enough to see the pros and cons of taking this loan”: Should I refinance my house to pay off debt?

Hi Money Minder,

Hey there Money Minder,

So, I’m in a bit of a pickle and need your expertise. Here’s the deal: I’ve got a mortgage of $144,000 with a fixed rate of 2.25%, a HELOC debt of $41,000 at 8.5% variable, and credit card debt of $25,000 at ridiculously high rates between 25% to 28%.

My house is valued at $400,000, and I’ve been offered a $235,000, 30-year loan at 5.5% fixed to wipe out all my debt. The monthly payment would be $1734.00. Now, here’s the kicker: I’m retired, surviving on a modest pension of $912 a month and a social security benefit of $2161 a month.

Honestly, I’m a bit lost. Should I take this loan or not? Can you please break it down for me and let me know the pros and cons? I appreciate your advice on this. Thanks in advance!

Catch you later Money Minder,
Debt-Drowning Dave

Response from THE MONEY MINDER:

Thank you for reaching out to us. We are here to help you manage your finances and make informed decisions about your money. Please let us know how we can assist you further.

Hello There,

I understand your concern and the predicament you are in. It is not easy to navigate through financial issues, especially when it involves debts. Your situation is complex, but it is crucial to assess your options realistically.

Based on the information you provided, refinancing your house to pay off your debts seems like a plausible solution. By consolidating your mortgage, HELOC, and credit card debt into a single loan with a fixed interest rate, you may benefit from a lower overall interest rate and a more manageable monthly payment.

However, before making a decision, carefully consider the long-term implications of taking on a new 30-year loan. While the monthly payment of $1734 may seem affordable now, it is essential to ensure that you can sustain this payment over the long term, especially considering your retirement income.

You should also weigh the benefits of paying off high-interest debt with a lower-interest loan against the potential risks of extending your mortgage term. Make sure to calculate the total cost of the new loan, including interest payments over the life of the loan, to determine if it is a cost-effective solution for you.

I recommend consulting with a financial advisor or a housing counselor to discuss the specifics of your situation in more depth. They can help you analyze the pros and cons of refinancing and provide personalized advice based on your financial goals and retirement income.

Remember, financial decisions are not always straightforward, but with careful planning and expert guidance, you can make informed choices that will help you achieve financial stability in the long run.

Best of luck in navigating through this decision-making process. Remember, THE MONEY MINDER is here to support you along the way.