HELOC denied and don't know what to do next

[Lynn Maher]

I have a few things going on. So much that I wasn't sure how to title this! 

First, I have too much credit debt (embarrassed to admit 50k) and wanted to obtain a HELOC to pay off and at least get a tax credit for the interest paid. I have been refused at two big banks because of high debt to income ratio even tho the reason I want the HELOC is to decrease my debt. They know this so I don't understand the rationale behind the denial. Plus, I have income. A good income (200k/year) but it's been a tough few years and I have been helping out my kids a lot. That should be dwindling down now. I should be able to pay this off without bank but it would take awhile and again I would like the tax credit.

Second, my mortgage is in my husband's name. Not mine. We shared the title and now the house  is mine as he passed three years ago. But, I just kept paying the mortgage. I paid off our second mortgage these past few years. (In hindsight should have paid minimum on that and paid of cc debt).

Third, I finally sold a piece of vacant property we had and received about 50k after fees and mortgage paid. Technically, didn't make any money on this as it sold for 3k less than we paid for it. But, now I have 50k in savings. 

What do I do now? I have been looking at multi-family properties in my area. A few I could pay cash for with a good cash flow and cash on cash ROI. A few I could put down payment on and need small loan (60-70k). Will I even qualify? Should I take the 50k and pay of credit cards and start from scratch? Feel like I've been doing that my whole life. This is the last time I will ever have a "chunk" of money like this. I am over 50 and want to get out of my job. I want to start developing some passive income and take control of my life and my money. Working 6 days a week is wearing me down mentally and physically. What's the point of life?

Maybe if I take part of the money for a down payment and part to pay off debt I can head in the right direction? What priority should I give to getting my primary mortgage in my name? Should I continue to pursue a HELOC for my primary residence?

I'd appreciate any and all advice. I've been a member here for over a year and enjoy reading the posts and listening to the podcasts. This could be a turning point for me and I want to do it right.

Thanks everyone for listening!

[Daniel Chang]

Very simply, you were turned down for the HELOC because despite what people say, they don't do what they intend to do. In other words, the bank has no guarantee that you will actually use that money to pay down CC debt.

Sorry to get a bit harsh.  But halfway reading your post, I thought to myself, "is this person serious??"  I'll just summarize your points:

- Tried to get HELOC to pay off CC debt - failed

- Made a mistake of paying off mortgage instead of CC debt

- I came into some money selling off a property....

Anyone reading this would think "she's going to use it to pay off CC debt". But all of a sudden "maybe I should do something else with the money, like buy investment property..." You essentially just confirmed that the banks were right in turning you down for a HELOC.

Money is fungible. Meaning it does not matter if you got $50K from HELOC, or $50K from selling a property. If you couldn't secure the $50K from a HELOC, but came into $50K from selling property, the original intention of paying CC debt shouldn't change.

Paying down high interest debt is a guaranteed win. If you pay off $50K debt that is accruing at 20%, you are essentially earning a ROI of 20% on your $50K. If you use that $50K to buy investment property, can you get an ROI of 20% (after tax) guaranteed? If your ROI on your investment property is 15%, but your CC debt is accruing at 20%, you are losing wealth. Not to mention if the investment property actually loses money, now you create even a bigger hole for yourself. If paying off debt to you is "starting from scratch," I think buying an investment property in your situation is "digging a hole and walking across it on a tightrope".

Be smart and pay off the debt.  And if you have $200K income, it should be no issue rebudgeting and redefining goals, $50K should be very easily saved within 1 year.