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Should my husband and I refinance our mortgage and add in our credit card debt and our car loan to have a lower monthly payment in retirement?

My husband is retired and receiving Social Security benefits. I am still working but plan to retire in about a year. We have a mortgage, $9,000 in credit card debt, and a $13,000 car loan. We are trying to decrease our monthly amount of payments, so we don't risk not being able to pay our bills each month once I retire. Should we refinance our mortgage and add in our credit card debt and our car loan to have a lower monthly payment in retirement?

Debt, Financial Planning, Retirement, Social Security
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September 2018

Rather than focus on the payments, I like to consider all factors involved. Refinancing will have expenses associated with it that may far outweigh any real benefits. The cost needs to be compared to the savings, if any, in current interest charges. Included in that calculation is the fact that you would be converting the car loan and credit card debt into 30-year debts upon which you will pay interest for 30 years instead of the current terms. You also need to consider whether or not you may even qualify for a refinance on your current incomes. This would be driven by the amount needed for the new loan. You did not mention what the current principal balance is on the mortgage or how much time is left on it. Also, since interest rates are rising, you may actually be giving up a low interest rate mortgage for a higher interest rate mortgage. I'm going to suggest that a refinance, as you propose, is probably not a good idea. Actually, combining the current mortgage balance, with the closing costs, credit card debt, and car loan, all at a higher interest rate, may actually increase your total payment.

Alternatively, consider these options:  Transfer the credit card debt to a 0% promotional card so that all of your payments go towards principal. Realize that if there is a transfer fee, that is essentially an interest charge, but will likely be lower than the current interest being charged. If you have very good credit you may be able to find a card at creditcard.com that has no transfer fee. Then aggressively pay down the balance. If the car was purchased at a promotional interest rate, like 0.9% or 1.9%, then it is already lower than your mortgage interest rate. Continue to take advantage of this low rate and pay it down aggressively. If the interest rate on the car loan is higher, explore the best rate on a home equity line of credit and possibly use that to pay off the car if there is any advantage. Then of course, pay off the home equity line to rid yourself of the debt.

The goal is to retire with less debt, rather than the same amount of debt repackaged. After maximizing the portion of payments going towards debt reduction, you may consider working a bit longer to pay off the credit card and car loan if necessary. Or both of you working less demanding part-time jobs during retirement if possible. I wish you the best.

September 2018
September 2018
September 2018
September 2018