Q: We have a $45,000 mortgage, which will be paid off in five years. We also have $45,000 in credit card debt, and we have no savings. As we are nearing retirement, I want to refinance, consolidate our bills and have money to put away for emergency purposes. My husband wants to own our home, maybe do credit counseling to get rid of debt. But, this will not give us any money we might need. He keeps hearing that owning your home is the most important thing you can do.
Is that true, and is there a way we can do this, so we can accomplish it all?
Boulder Creek, CA
A: Can I be blunt?
It may be that your trying to have it all is what led you to having so much credit card debt.
I don’t like to take sides, but in this case, your husband is right about staying on your path to pay off your home. At least he’s right that it’s important to get rid of that great debt burden.
But, in one way, you are right. It’s not a good idea to be “house rich and cash poor.” That expression means you’ve put all your cash into your house, leaving you with no savings. That’s not good, because as you are now realizing, you still need an emergency fund. So, if you and your husband have been making extra mortgage payments, stop that for now, until you can build up your savings.
The thing that concerns me is that you want to consolidate the credit card debt and take out more debt to create a cash cushion. Don’t do that. Don’t add to your debt load. You should not build an emergency fund with borrowed money. That’s not an emergency fund. It’s adding to your burden.
Again, listen to your husband and get help from a non-profit consumer counseling agency. The agency can assist you in creating a repayment plan for that $45,000 in credit card debt. Go to the National Foundation for Credit Counseling Web site to find an agency near your home. It might take you three to five years to get rid of that debt; but, with cuts and discipline, you can do it.
Most importantly, try to start saving something. Start small with perhaps $50 a month. But, make it a priority to build that emergency fund before you actually need the money. I also hope you’re saving for your retirement.
And, consider this. In five years, if you stay on track, you won’t have a monthly mortgage payment. You can then take that money you were using for your mortgage and add it to your plan to build an emergency fund. In addition to building up your fund, you can boost your retirement savings.