Collectively wife and I have roughly 30k credit card debts, some already being sent to collectors that are looking to settle for less. We also started making payments on the house again thanks for partial claim, so that is in good standing now. Problem is credit card payments are still killing despite decent income.

Could we get HELOC with fairly low credit scores to consolidate debt? Our home is valued at $410k with $195k estimated home equity. Obviously, an 8th of available equity would be enough to consolidate our cards, but I do not know if that is how it would work.

How likely are we to get HELOC then, do we have other options? I spoke with someone recommending defaulting on cards, settling for less, and then recovering the score over period of 6-12 months. I do not feel comfortable with that, but neither with crumpling debt.

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KReddit934 t1_jecqphe wrote on March 31, 2023 at 1:35 AM

Generally it's not a good idea to transfer "unsecured " consumer debt to a "secured" loan like a HELOC. Good way to lose your house..

Concentrate of keeping the mortgage paid in full and on time.

If you really cannot cut spending or earn more, then it'll be time to stop paying the credit cards and save up as much as you can in cash to make offers to settle.

satans_toast t1_jecqzo3 wrote on March 31, 2023 at 1:37 AM

I was thinking the same thing. HELOCs should only be used to improve the asset itself, not for unsecured stuff. People got in real trouble a few decades ago by using HELOCs to pay for vacations and such. Similar principle with this. My own take, not a professional advisor.

tharesabeveragehere t1_jecrsfw wrote on March 31, 2023 at 1:43 AM

If you're already in collections, your score is screwed to the point where even a secured loan (the HELOC) would be at a high rate.

There's zero point in borrowing to pay down debt that's already bad debt.

torunmetsfan t1_jed21ct wrote on March 31, 2023 at 3:06 AM

Unless the credit card debt was the result of a medical emergency… you borrowed so much money that you couldn’t pay it back and now you’re being hounded by collectors! You already apparently own a house so why in the world are you focusing on what will allow you to borrow more money again in the future (your credit score) rather than just getting out of debt and making sure not to make the same mistakes again?

MuppetManiac t1_jedh72m wrote on March 31, 2023 at 5:36 AM

A HELOC doesn’t settle debts, it just transfers them. And puts your house at risk.

brogrammableben t1_jecqcy4 wrote on March 31, 2023 at 1:32 AM

HELO still requires a decent credit score. Sounds like yours might not be high enough.