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Q: We have been looking at different options for paying down some of this debt and consolidating. We are COMMITTED to getting rid of our credit cards (we have already cut them up and thrown them out!!!!) We really want to get rid of the credit card balances we are carrying, and possibly one or both of the car payments. Our home is also in serious need of some repairs and upgrades. We have been looking at a few mailers that have come our way that indicate we can borrow up to $32,000 to pay off debt and improve our home. Interest rate is 11.99% for 25 years with a $336/month payment. The flyers claim that no equity is needed for this loan, it is based on our ability to pay and I *do* earn a fairly good living... What are our best options? Is there anything we can do? We are very cash poor because of all of our bills and really need to do some things with our house and consolidate these higher payments into a lower monthly payment that we can handle... Any advice on what to do or what not to do? Are there any options for us?

A: Well, you are getting screwed in interest rates. This starts because you were sub-prime to start with, and then you layered high interest rates on top of that. In addition, you are not using your income efficiently since you are paying so much in interest and so little in principal. Finally, you have a spending problem. There is no way that someone with $200K in debts should be driving a luxury car. First, you are paying way too much in interest on the cars. There are lots of 1.9% and 2.9% deals floating around. Take both cars, head to the car dealer, and swap them off for two Hundi's at $8K each on the 1.9% deal. This will reduce your car payments, get rid of a bunch of debt, and will free up some of your monthly income to use for other things. Or better yet, lease the cars so the debt does not count against you. Next, find a 7.5 to 9.5% home equity loan. What you need to do is get your house re-appraised, and pull out that $10K in equity due to the good house market. This is risky in that if you had to sell, and the market goes down, you will have more loan than home. But times are good, so take the risk. Use the $10K to pay off the $6K credit card and $4K of the $11K credit card. You will get a better rate on 10K since you have equity to cover it. Since this is greater than 80% loan to value, you won't get the 7.5 rate, but you won't get screwed on a rate for a 125% loan, either. Next, use the extra income from the lower car payments and the money you save by having paid down the credit cards, and bust your ass at work to pay off the rest of the $11K credit card. After you get the cards paid off, attack the $10K Home Equity loan. It will go more quickly since you don't have all those other pesky high consumer debts to pay off. After this is paid off, you will have cleaned up your credit dramatically. This will allow you to refinance your home loan and get a 6.x% rate and do away with the balloon payment. The key to this is to be willing to live without some of the luxuries that you have grown to love by simply cannot afford to have. Sure, a Hundi is not a prestige car, but it is the key to getting back on your feet. If you don't, you are looking at a time bomb. You see, that balloon is coming up sooner than you think. You will be surprised how soon it gets here. If you keep on spending, you will not be able to clean up your credit. And then the balloon will come, you will not have the credit to get a new loan, and boom!, the balloon blows up and you lose your home.

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