Return of the Harrowing HELOCs

Today's version of BunnyWise Live is prerecorded, so our phone lines are not open. There haven't been many bright spots in the COVID pandemic, but tightening requirements for home equity lines of credit may have been one of them.

Hi, I'm Rob West. When the pandemic hit in late 2019, many of the nation's leading lenders began scaling back HELOCs. But a brief Google search now reveals plenty of lenders willing to make them. I'll talk about that first today, then we'll have some great calls lined up.

But since we're not live today, please hold your calls until next time. This is MoneyWise Live, biblical wisdom for your financial decisions. I should point out first that lenders at the start of the pandemic cut back on home equity lines of credit and their cousins, home equity loans. The names are similar, both tap into the equity of your home and both put your home up as collateral.

But there are important differences. A home equity loan sets a fixed amount to be borrowed all at once with fixed monthly payments for a determined amount of time, let's say up to 10 years. A home equity line of credit is more flexible. It's a revolving type of account that sets a maximum amount to be borrowed, but you're able to draw on that as needed and your monthly payments are determined by how much you've borrowed. The more you borrow, the higher the payments.

But there's another huge difference. While home equity loans have a fixed interest rate, so you know how much the loan is costing you, a HELOC has a variable interest rate. Now, it's true that you'll be told up front the maximum rate the outstanding loan can rise to, but there are two things to consider here. First, the initial variable interest rate for HELOC may only be an introductory rate to make the loan more attractive. And second, interest rates in general are still very low right now.

That means if there's a change, it will more than likely mean your rate will increase. I don't really like either of those loans, but if I had to choose, I'd go with a fixed interest home equity loan over the HELOC's variable interest rates. Now, here's why both of these types of loans are making a comeback. First, many signs indicate the economy is still slowly recovering with some 10 million unfilled jobs, so there's plenty of work out there. Plus, with home values sky high these days, there's now more equity in America's homes than ever previously recorded.

Well above, listen to this, $7 trillion. That's a lot of money to back these kinds of loans, so lenders feel more secure in making them. But borrowers have to be aware of the dangers involved with either of these loans. First, if you're taking out one to pay off credit cards, for example, you're exchanging unsecured debt for secured debt. As I mentioned, you've put your home up as collateral just as you did with your original mortgage.

Since the debt is now secured by your home, you can lose it if you're not able to make the payments, just like you would with your mortgage. Also, these loans often come with high origination and maintenance fees, so that's something to consider. And they're often what are called demand notes. That means the lender can call or demand full payment of the loan under certain circumstances, which are no doubt spelled out in the fine print. Why would a lender do that? Well, there's nothing to prevent a lender from checking your credit after the loan is made. They might do that if they're thinking about offering to lend you even more, for example. But if by doing that they see that you're suddenly making late payments somewhere, it could trigger a demand for the loan to be repaid.

Here's another huge problem with these loans. According to Bankrate.com, one of the major reasons folks tap into their home equity is to pay down credit card debt. Well, that likely means they're living beyond their means.

And there are several reasons for that. Not having an emergency fund with three to six months living expenses in it, not living on a budget, or maybe trying to keep up with the Joneses. Any of those will lead to credit card debt and make a home equity loan seem attractive, even enticing. Instead of taking out a home equity loan, use the snowball method to pay down credit card debt, paying off the lowest balance card first. That way you can't run up more debt and your home will be safe. Now, is it always unwise to take out a home equity loan? No, because there may be circumstances where a financial calamity overwhelms your emergency fund and you really have no choice but to tap into your home's equity. An example might be significant damage to your home not covered by your insurance.

Those events are rare, but they do happen. By far the most legitimate reason to take out a home equity loan, not a HELOC, is to make repairs or improvements to your house. But then, only if you have enough equity, the payments are well within your budget, and most important, you pay it off as quickly as possible. Hey, this is a reminder that we're not live today, but we do have lots of great information coming up in the rest of the program. This is MoneyWise Live, biblical wisdom for your financial decisions. I'm Rob West, your host, and we'll be right back. Stay with us. Thanks for tuning in to MoneyWise Live, biblical wisdom for your financial decisions. Our team is taking some time off today, so we're not in the studio. This was prerecorded, but we've got some great calls lined up, so I hope you'll sit back and enjoy as we head to Quincy, Washington.

Hi, Nate. How can I help you, sir? Rob, so my question is, me and my wife are currently living in a rental that's provided from my job, so rent is relatively cheap at only $510 a month. So we bought a house that we turn into a rental in a nearby city, and our question is, we owe about $41,500 on that rental, and our question is, we want to buy our own place, and so we're debating whether we should just finish paying off that $41,000 or so, and then, you know, put that income coming in from that rental and the money that we're saving to put down for a house or sell this house and use that equity. It's probably worth $140,000, and to be able to get to our goal of buying a house sooner. What would your thoughts be on that?

Yeah, that's a great question. I mean, I guess the first question is, do you want to continue to be a landlord? I like the idea of you all having this income stream, especially if the rental income has been consistent and it's been enough to cover the debt service and taxes and insurance and give you some for maintenance and upkeep.

Tell me about that. Yes, actually that was one of our goals, is the rental thing, because of, you know, long term, we figured it's an extra kind of a retirement income and so forth. The rental that we're living in now is, you know, kind of small. We've got a family of two kiddos, so we're wanting to buy something, you know, bigger and something that would be our own, but we're just wondering, you know, what would be the best. But I do want to, you know, keep in the rental, so I guess the next question would be, if we did sell it to buy ourselves a place, then later on trying to get back into buying a rental, maybe the difficulty of that. Yeah, I don't think it would be necessarily difficult. In fact, you could likely sell this for top dollar just given what's going on in the housing market.

Of course, I don't know the specific market it's in, but just nationwide. And then perhaps if you buy a home, you know, another rental home a year or two or three down the road, perhaps we even see a softer real estate market that's less of a seller's market, perhaps a bit more of a buyer's market and maybe you improve your situation. Let's focus on what you're buying though for a second without disrupting the rental that you have now. What are you looking to spend as you and your wife think about your budget? And how much do you have saved up?

Well, preferably I don't want to go too much over the 200 grand mark just to keep my payment relatively decent. We have, we've got several different accounts, but the wife did the math is like 14,000 that we have in liquid capital. And then of course, you know, the 40,000, 41,000 that we owe on that house. So we're just kind of debating what our next step is. You know, I think given that you all are ready to make this move, and it's going to take you a while, it seems like to get to my target of 20% down, which would be 40,000 on a $200,000 home, it seems like as much as I'd love to preserve this income stream, you're probably going to put yourself in a stronger position to go ahead and sell it, especially because hopefully we can really maximize the value of this property in light of what I was sharing about the housing market, and then take that equity plowed into this new home that you would buy and then from that point begin saving to buy your next rental down the road again, maybe in a more favorable market to buyers, but I'd rather you not go into this property with, you know, only five or 10% down and it seems like if you're ready to make this move, you guys are feeling a little cramped, then, you know, this might be the time to go ahead and sell this rental and make this purchase, do it in a way that fits well within your budget, and I'd use 25% of your take-home pay for principal interest taxes and insurance as your guide. Does that make sense, though?

Yeah, yeah, that makes sense. We're not necessarily pushed to, you know, move right away. This could be, you know, a year down the road even too, we're just trying to look at the best options. Well, I would look at it in light of, you know, are we comfortable waiting as long as it would take for us to get to 20% down, and if so, fine. If not, perhaps this is a great time to go ahead and sell this rental property, make that purchase when we're ready, and then, you know, we can buy another rental property down the road and you guys already have the experience to go with it.

But either way, I'd pray it through, but I wouldn't enter that property, the new home, without 20% down, and that there might make your decision for you. Nate, thanks for your call, sir. Tenley is in Naples, Florida. Hi, Tenley. How can I help you?

Hello, Rob. Thanks for taking my call. This is kind of a crazy question, I guess, but I'm a 66-year-old widow, and so lately after, well, anyway, I haven't been able to do my own business because of the coronavirus, and then I had an injury, so I'm out for a few more months, and so I'm about $1,000 short every month, and my son has offered to pay my house payment, which is about $1,500 a month, and just pay my house payment every month, and then once I'm gone, then I just, you know, sign the house over to him. So if I don't live very long, you know, it would probably be in my best interest if I live a long, long time, it'd probably be in his, but I don't know, I've got two other kids to consider in this thing, too, and I don't even know if it just makes sense at all.

Yeah. Well, there's a number of issues going on here, yeah, and I think you need to think long-term first about your plan for wealth transfer and how you'd want to handle your estate, and make sure that this lines up with that, because this may put you in a position where you're not able to carry out your wishes with regard to how you want to pass God's resources to your heirs and or give it to ministry or charity beyond your life. And so, you know, this is going to complicate that, although I appreciate what he's trying to do, given that you have this shortfall.

Obviously, you can't sign it over to him unless the loan is assumeable, so one option would be you sell the house to him and then rent it back from him at a price that fits your option, but if you sell it below fair market value, it will probably trigger, you know, a gift tax situation, and so you just need to recognize that, although the thresholds are very high, you just need to acknowledge that. So I think, you know, let's start with you deciding, here's how I want to handle kind of my resources after my life, and then figure out which option allows you to carry that out and solve for the issues that you have. And I think that's going to leave you with either, you know, if he's willing, asking him to go ahead and buy it and then renting it back in a way that fits your budget, or to, you know, just selling it and perhaps downsizing, finding something that fits with what you can afford, and then, you know, would allow you, you know, down the road to go ahead and pass your affairs and your estate equally to your children, if that's what you choose. Does that make sense though? Yes, it does, and yeah, that's a good idea. Yeah, and I know it's not simple, because, you know, you've got this shortfall, he's trying to help, and you know, there's a lot of moving pieces here, so I would give some prayerful consideration to how you ultimately want this to play out, and then sit down with him and see if you all can come up with a plan that allows you to do that and stay in your home if that's what you want to do in a way that actually fits your budget.

But I'm sure he'll appreciate the fact that, you know, you can't put yourself in a position, or you may not want to, where the kids could be missing out on a portion of what you'd ultimately like to share with them because of this arrangement. We appreciate your call, Tenley, keep us posted on how it goes. We're going to pause for a break, and then we'll be back on MoneyWise Live. Stay with us. Thanks for joining us today on MoneyWise Live, I'm Rob West, your host, and our team is taking some time off, so don't call in, we're not in the studio, but we lined up some great questions in advance that I know you'll enjoy and benefit from today.

In fact, let's go right back to the phones. Jean is in Chicago, Illinois. Hi Jean, how can I help you?

Hello. I have an elderly friend who has a duplex that she asked me if I would buy it from her at a reduced cost, because she cannot afford to take care of it, and give her the opportunity to live in it until she dies. Do you think that's a good investment?

Okay, so tell me how this would work. You own the duplex and you're living in one side, or this would be a new purchase for you? You know what, this is a new purchase, half of the duplex is commercial and the other half is residential, so I would rent out the commercial part and she would live in the residential part. Okay, and would she be paying you some sort of rent on that, even at a reduced rate, or would she be living rent-free?

She would be living rent-free, because she's selling it to me at a reduced price. I see, okay, yeah, and then you said one side is commercial, so you would be leasing it to a tenant who would bring a business in, is that right? Yes. Okay, and do you have any sense of, you know, what the history has been on this? You know, has your friend been able to keep it leased with consistency? Yes, she had until COVID, and then everything's shut down, that's where she fell behind. Yeah, so it's currently vacant right now on the other side?

It is. Okay, all right, talk to me about your financial situation, what is she going to sell this to you for, and how are you going to pay for it? You know what, she's going to sell it to me for $100,000. According to tax records, it's worth $236,000, but it's worth more than that, I'm sure. But we could pay cash for it.

Okay, and would this come from what sources? Retirement accounts, or do you literally have this in savings? Savings.

Okay, all right. Yeah, you know, I mean, it sounds like it could be something that would be a real blessing to her, and it sounds like you all potentially have the financial means to do it. I'd love for you to get some some counsel on this before you proceed. Number one, you are going to have to establish the market value of this because the discount is going to have to be acknowledged from a tax standpoint, the IRS is going to make you report, you know, this amount or her that she's essentially gifting to you. And then you're turning around and letting her, you know, live rent free, which is a gift back to her. And so you're going to have to sort out how this is all going to need to be handled from an IRS tax perspective. So that's number one, I'd find an accountant or a CPA if you don't have one that can weigh in on both sides of this transaction for you. It's the fact that you're living hurt, allowing her to live rent free in exchange for her selling this to you at a discount. You certainly don't want to get sideways on that and not report that properly and that come back to hurt you down the road. Plus, I know you you want to do the right thing as well.

So that's the first piece. The second piece is just making sure that you all have done some retirement planning to look at what assets you have available, how you're monetizing those in terms of how are they invested and what can they be converted into as an income stream if you're going to need them down the road just to make sure you all have enough in the way of assets to do this because I think you've got to recognize that you're getting yourself into being a commercial landlord and that can be challenging. There's a lot of changes taking place depending on where this is located and what types of businesses this perhaps storefront would be most accommodating for. You need to understand what risk you're taking here in terms of whether or not you can turn this into income. A better option for her might be just to sell this outright. It's a phenomenal real estate market right now. I realize it's a bit of a more complicated piece of real estate because it's got both the commercial and the residential, but if there's an opportunity for her to maximize the value of this, it would be right now and a much simpler approach would be for her just to sell it and find a place that she can afford which doesn't tie you into this transaction.

But if this is something the Lord has impressed upon you to do and she wants to stay put and you all have done the planning and you feel like you have the assets to do this and you're willing to take on the risk of not leasing the commercial side of this and if you are on an ongoing basis being a landlord and all that comes with that, the time and the energy that you're going to need to put into maintaining this, then I don't think there's anything wrong with it, but at that point you're going to need some tax assistance to make sure that you properly report the transaction on both sides and you stay square with the IRS. Does all that make sense? Oh, it does. I thank you so very much. All right. Listen, all the best to you, Jean, and we appreciate your call today.

May the Lord bless you. Hey, let's take an email before we pause for a break. This comes from Sally and Sally says, I've got six credit cards. I want to know how I should close them without impacting my credit score. And Sally, we actually just tackled this question not too long ago on the broadcast. It's a good one.

It comes up often. You know, I think the starting point is to recognize that when you close accounts because your credit score is a moving target, you're likely going to see a move in your credit score and it's probably going to be a temporary decline. But that's OK, because keep in mind, if you are not out seeking credit, that means you're not looking to refinance your mortgage or buy a house or get a loan for a car. A temporary decline in your credit score is just that. And it's really going to have no bearing on you. I like the fact that you would be reducing the number of cards you have because six is more than you need.

And that eliminates the potential that it's going to be compromised. So where would you go from here? Well, I would say as long as you're not out seeking new credit, you go for it.

But let's only close two per six month period, which is going to alleviate any significant drop in your credit score. And I think you'll be a lot happier once you're done. We appreciate you sending your email today. Thanks for checking in with us. Folks, we're going to pause for a brief break and we'll come back much more on MoneyWiseLive biblical wisdom for your financial decisions. I'm Rob West, stay with us.

Thanks for tuning in to MoneyWiseLive biblical wisdom for your financial decisions. I'm Rob West, your host. So glad to have you along with us today. Our team is not here today. We're taking some time off, but we've got some questions that we've lined up in advance. So let's get right back to the phones.

John is in Tampa, Florida, and John, how can I help you, sir? Yes. My wife and I bought a new home without selling our original home about three years ago. And we're positioned now to sell the original home, wanting to avoid, of course, any capital gains, which is going to be quite substantial.

What can I do? How do I do it to do that? To put pretty much that money towards our new home. Yeah. So this is a home that you lived in as your primary residence? Yes. Or no?

The previous home. Okay. Yes. Okay. Was it your primary residence for two out of the last five years? Yes. We're in our current home three years, so that would have been two years before that it was a primary residence.

Okay. Yeah, you're going to want to check on that just to make sure that you can, in fact, qualify for that. The rule says you can avoid capital gains on a home sale if the home was your primary residence for two out of the last five years. So if you can meet that requirement, and again, I'd check with a tax preparer on that, that's going to give you, as a married couple, half a million dollars in gain that you will not have to pay capital gains tax on. If you don't meet the requirement, then it's going to be considered not your primary residence.

You would not qualify for that exclusion. At that point, really your only options are to pay the capital gains or to do what's called a 1031 exchange if you wanted to roll the proceeds into another property of like type, income producing. And what are your plans beyond selling this home? What were you going to do with the proceeds? Put them towards a new purchase of the home because it's a 30 year mortgage and we're both in our 50s.

I'd like to have it paid off before we retire. So that was our original plan even back then to do that. Okay, so you're just going to plow it into the home you're living in currently? Correct.

Okay. Yeah, so a 1031 exchange would not work and this would be for somebody who has a rental property. They're going to push the capital gains forward and so they're rolling those gains into another property.

At some point, they'll have to pay them but they'll just kind of kick the can down the road. Not so here because you're just going to put this into your current residence. So I think the key would be can you qualify for that exemption on this being your primary residence with a half a million dollar exclusion. So I would just check with your tax preparer, give them the dates of when you own that property and how long ago that was.

Let them look at that and hopefully you do and if that's the case, you know, as long as you have less than a half a million dollars in gain, then you would pay no capital gains on that. Okay? Okay.

Thank you very much, sir. Okay. We appreciate your call.

Megan is in Chicago. Hi, Megan. How can I help you?

Hi, sir. Thank you for taking my call today. So I'm looking at reducing my, you were talking about it a couple calls ago, you know, giving myself some room in my budget and I currently have a car loan that is 38 months long. I owe about $10,000 but my interest rate is 6.25%. I'm looking at refinancing the car to around 3 to 4%. They say that it could save me somewhere between $400 or $500 in interest, but the loan would extend to 48 months versus 38 months. Okay.

I just don't know if I should do it. Yeah. So the total interest paid over the life of the loan would be, you'd experience a savings? That's what they're saying? Yeah. That's what it's saying. Okay.

And we got quite a bit of background noise there. You know, I think the key is number one, you know, we typically don't want to increase the term, but I realize you're trying to solve for a couple of things. Number one is you want to get an overall net reduction in the amount of interest you're going to be paying. And then number two, you're trying to right size your budget so you have margin to accomplish other things. I think the key here is let's take a hard look at what you have, what you're going to pay between now and the end of your current loan versus with this new loan and just see whether in fact that's true that you are going to experience a net reduction in the amount of interest paid. If that's the case and you can get the lower payment, which allows you to have a bit more margin to focus on other priorities, whether that's debt reduction or savings, I think that that works. And then the key is let's just get that paid off as quick as you can. And then perhaps once you're done, keep paying that payment to yourself to rebuild the fund that's going to allow you to buy the next car for cash. And let's get out of the cycle of having to do this each time. So evaluate this again. Make sure you are going to experience the savings.

And if so, and this results in a reduction in the monthly payment, I'd say you go for it, Megan. We appreciate your call today. Judy is in Chicago. Hi, Judy. How are we going to help you? Hi, Rob.

I love your show. I'm calling for my daughter and her sisters who suddenly lost their father three weeks ago. He did not have a will. He is currently, he was married. The woman he was married to, they were only married for a year.

They have not been able to find none of his paperwork. They believe that she has taken it and hid it. They don't know if, you know, they do know that the house they live in presently is in his late wife who he lost seven years ago, their mother.

Seven years ago. It's in their name and her father's name. What do you recommend for them to do? Well, you said there is no will. Is that right? There is no will. Okay.

He has money in the bank. Yeah. Go ahead. I'm sorry.

Okay. This varies by state, Judy, but generally when you die without a will, the state's what are called intestate laws will come into play. So the estate still has to go through the probate court, which will appoint a personal representative to oversee the distribution of the assets. But they need to contact the probate court to get this process started. And then the personal representative that's appointed by the probate court would then apply the rules in terms of for that state, what is the priority distribution? Most often the spouse has first priority, then the children, grandchildren, parents and siblings. So there's certainly no guarantee that the spouse will be able to keep everything. But ultimately, because there's not a will, it's going to come down to the probate court's decision on how to distribute the assets.

So as a next step, I would have them reach out to the probate court to initiate this process. Okay. All right. Thank you so much. Appreciate that. All right.

I'm sorry. I know it's a difficult situation, but I appreciate you walking alongside them and we'll certainly be praying that the Lord would intervene and that his will would be done and where we go from here. And thank you for your call, Judy. Well, folks, you know, we've covered a lot of ground today. You know, ultimately, it comes down to as we think about how to handle God's resources, you know, there's an unlimited number of things we can do with it. I think the question is, where is God taking us? What are our values? What's most important to us? And are we allocating our money in a way that aligns with that?

We certainly want to. That's the key. And in some cases, that may mean we need to make some changes. So I would look hard at what the story is being told. What story is being told by how you're allocating God's resources? And if you're not happy with that, make a change. I think we all need to look at that from time to time. And the spending plan is the great revealer of that. As you look at where God's money is going, then you have clarity on what changes need to take place.

We're going to pause for a brief break when we come back. Much more from MoneyWise Live. Stay with us. Thanks for tuning in to MoneyWise Live. I'm Rob West, your host.

This is biblical wisdom for your financial decisions. Our team is taking some time off today, so don't call in, but we've got some questions that we lined up in advance. I know you'll enjoy them.

We're going to go next to Lakeland, Florida. Hi, Beth. Thank you for your patience. How can I help you? Hi. Thanks for taking my call. I appreciate it. Sure. I love your show. Thank you.

I have a question. I've been very blessed with GodIsSoGood. He's given me a great job that I really enjoy. And I'm getting ready to retire in about six or seven months. And I do have some cash available, about $80,000 in my checking account, saving account. I have a 401k that's a nice sum in the 401k. I have a $15,000 credit card. It's the only credit card I have that I'm using. And I wondered if I should take part of that $80,000 and pay it off totally, or should I continue making an overpayment, you know, like so much a month, you know, to pay it down?

Yeah. I'll weigh in on that in just a second. What roughly is the balance in the retirement account that you have? I have about $175,000. All right.

And how much are you planning to pull out of that to supplement your Social Security each year? I don't know. I really wish I could answer that. I don't know.

Okay. Well, I think that's the next step is to do a budget and really understand what are your expenses going to be once you retire within six months, and then determine how are you going to fund that? You know, what income sources do you have available? If it's Social Security, great. If it's pulling an income off of that $175,000, that's fine. I would get an investment advisor to manage that for you, and I'd be looking to pull ideally no more than $7,000 a year, you know, or about $600 a month from that. And ideally, the $600 a month plus your Social Security, if that's how you're planning to fund this, you know, would cover your expenses.

If that's the case, that's great. Then we've got this $80,000, you know, that you've got in savings, which is, you know, going to be well over a year's worth of expenses. And I would say absolutely, at that point, let's wipe out the $15,000. You still got $65,000 in savings to fall back on. And hopefully, the income that you're pulling from the $175,000 plus Social Security is covering your expenses.

At that point, you just need to manage the money that's coming in every month to make sure that you're not overspending and find an investment advisor to handle that for you who could deploy that $175,000 in investments. Does that make sense? Yes, it does. Thank you.

Okay. You can find an advisor there in Lakeland by going to our website, MoneyWiseLive.org. Click Find a CKA and get to work on that budget. Beth, let's make sure you understand exactly what you need every month in income to cover your expenses.

And if it doesn't match the $600 plus the Social Security, let's try to dial back those expenses and see what you can cut out. Let's head to Colorado. Hi, Christina. How can I help? Hi, Rob.

Thanks for taking my call. So, we are a single income family. We have five kids. And we basically cannot make ends meet at all.

I feel like my husband makes a relatively good salary. But we have credit card debt. We have emergencies that come up all the time.

I'm stressed out when kids are like, oh, I need shoes. I need this because we never have extra money. I don't do a budget right now because I feel like I know the expenses, but then there's always, always, always more expenses that come on top of it. Is it not realistic to be a one income family and live a normal life? I just feel like I'm not quite understanding what we're doing wrong here because I paid off credit cards and they just, as soon as I get them paid off, then there's something else that comes because we have no emergency account or anything like that because we can't. We have no money to put towards it. Yeah.

Well, there's no question about it. It can seem that way, Christina, and my heart goes out to you because I know it's frustrating and you're probably the one managing all of this and you see the bills coming and going and there's always more month and money and that just can be exasperating over time and it can feel like, yeah, unless both of us are working, we've got a family of five, this just doesn't work. And on top of that, it's even worse right now because of the inflation we're seeing.

But it is really elevated just because of the supply chain issues and the pandemic. So now everything seems like it's more expensive and it is, and in some cases it's significantly more expensive. It's all going to come down to, unfortunately, that spending plan and having margin because until you can dial back spending or increase income such that you've got margin every month to fund that emergency fund and get it up to where it needs to be, you know, $1,500 to start with and then focusing on the credit cards so that once the credit cards are gone or while you're paying them off, when something else comes up, you've got that $1,500 to go to first so you're not putting more money on the credit cards. And then once they're finally gone, and I know I'm making this sound easy and it's not, but once they're finally gone, then we need to get that $1,500 up to three months expenses. Once you have that in place, I think you'll feel a ton better because now when the unexpected comes and it will, especially with five kids, you know, you've got something to fall back on and you break the cycle, but it all starts with the spending plan. You've got to live on less than you earn, you have the margin so we can get the $1,500 and get the credit cards paid off and go from there.

So I think the best next step for you, Christina, would be to visit with our friends at christiancreditcounselors.org, see if you can get on a monthly payment plan with lower interest rates to get the cards paid off sooner, and then they'll work with you or one of our MoneyWise coaches could work with you to get the budget situated such that, you know, you've got a little bit of margin. Now, if that's not possible, then we may have to make some drastic decisions. Do we need to sell the house and move? Do we need to work part time and try to bring some more income in until the credit cards are paid off and the emergency fund is funded? I mean, you know, it's not going to be easy, but it's all going to come back to income minus expenses, you know, equals, you know, what we need to live on with some margin to take care of these other things. And until you have the debt paid off, the credit cards namely, and the emergency fund placed, you're always going to feel like you're constantly going underwater. So I know that's perhaps not the answer you want to hear. There's certainly no silver bullet there.

You know, you've got to trust the Lord, do the hard work, but I think between our MoneyWise coaches and christiancreditcounselors.org, perhaps that will get you to a place where you at least feel like you have a plan that you can work with and that you're making some progress. Does that make sense though? It does. Yeah.

Yes. Where does the extra money come from? I get it.

I get it. And so that's where we've got to know how short are we, you know, and be realistic, including the semi-annual expenses and the discretionary spending and Christmas and you know, we got to put everything in and are we $1,000 a month short? Are we $2,000 a month short? What are we short so that we can get the credit cards paid off in a reasonable period of time, get the emergency fund funded, cover all of our bills and not be unrealistic about what it actually takes to run your family. And if it's $1,000 or $2,000, it's either got to come from decreased expenses or increased income and you know, we're going to have to make some hard choices. But I believe the Lord will honor that hard work because clearly you want to be found faithful.

So just ask him to give you some wisdom. Connect with our friends at christiancreditcounselors.org and connect with our coaches and keep us informed and I appreciate your call today. We're going to head next to West Palm Beach, Florida.

That's where we'll finish today. Hi, Marie, how can I assist you? Hi, thanks for taking my call. I have a question about the PMI and the mortgage. If you have an FHA loan after the amount you've paid and your increase in equity, do you have to refinance to get rid of it or does FHA allow you to terminate that? Yeah, no, the mortgage insurance on an FHA loan does not handle like a mortgage on a conventional loan. So you've got to satisfy that loan before that goes away, unfortunately. And so that's not a situation where you can just get that automatically canceled as much as I would love to tell you otherwise. Okay, looks like time to refinance. Yes.

But unfortunately, it's an expense that doesn't do anything for you. And so I would completely concur that this may be worth thinking about in terms of refinancing. What is the interest rate on that loan?

I think it's 3%, but then the PMI is 0.8%. Okay. And how long has this loan been around? About eight years. Okay. All right.

Yeah. So it may be worth checking that out. I would certainly see if that's possible and then go from there because that expense is not doing anything for you. And I know you'd love to get rid of that, but it's going to be permanent for the loan.

So I would make sure you get at least three bids before you make a final decision. And check with the mortgage servicer. I mean, there can be some exceptions depending upon when your loan origination date is. This program was handled differently in the past prior to 2013. So I would start there.

Call that mortgage servicer and maybe you'll find that there is a way after a certain period of time, not based on the typical 20% equity we hear about with conventional loans, but based on a period of time, it may be able to be canceled and you don't want to refinance and spend the money if you don't have to. So give them a call. We appreciate your call today, Marie. Well, that's going to do it for us.

MoneyWise Live is a partnership between Moody Radio and MoneyWise Media. I want to say thank you to my team today, Jim Henry, Amy Rios, Deb Solomon and Gabby T. Thank you for being here today. We appreciate you tuning in, listening and calling, and I hope you'll come back and join us tomorrow. We'll be here. May the Lord bless you. We'll be here to support you and we'll be here to support you in the coming years. Thank you. Thank you.