Did you know that Americans owe an astounding $1.13 trillion in credit card debt? That’s a number that’s hard to picture, isn’t it? Inflation and increased interest rates have contributed to this growing number, and it certainly shows us that many American households are struggling.
In this blog, I would like to highlight how I recently helped a client secure a 30 Year Fixed 2nd mortgage to pay off his $130,000 in credit card debt. He’s been racking that up for years and was officially maxed out on his credit cards by the time he came to me. He does have a decent income (for the Bay Area) and had no late payments on his mortgage or otherwise, but if you’ve ever been in the position of trying to pay down credit card debt, it can feel like you’re drowning.
Here are some of his financial profile’s details:
- 682 credit score
- 1st mortgage balance of $1,190,000 at an interest rate of 4.925%
- Appraised value of $1,900,000
- Credit card balances totaled $130,000 with minimum payments due totaling $3614
- Credit card interest rates ranged from 14.99% to 29.99%, with most averaging in the low/mid 20% range
With a 682 FICO, the maximum Combined Loan-to-Value ratio is 75%, so working backwards with his appraisal of $1.9MM, that comes to maximum loans of $1,425,000, minus his 1st mortgage balance of $1,190,000 = $235k max 2nd mortgage loan amount.
We locked in a 30 Year Fixed 2nd at 10.0%. At a loan amount of $130k, the mortgage payment is $1140.84, which saves him $2473 per month. However, what I advised him is to pay the difference of what he normally pays towards credit card bills and pay that amount towards principal each month. If he succeeds in paying this additional $2473 in principal per month, then he will pay off the entire 2nd mortgage in 3.5 years. I cannot imagine him successfully accomplishing this without the payoff; it provided him with an opportunity to start with a clean slate while also benefiting from interest rate and payment relief.
If you’re in a similar situation as a homeowner, I can help calculate the net effective rate of all your credit card debt and demonstrate how this can help as well. The best news for many is that they keep their low 1st mortgage interest rate.
