Money And Marriage Messed Up

Rick discovered his wife maxed out their home equity line of credit and added credit card debt to their debt load. Should they refinance the home equity line of credit or sell the house?

QUESTION: Rick in Phoenix recently discovered his wife, who has been handling the money, maxed out their home equity line of credit at $50,000 and added $6,000 in credit card debt to their debt load. They make $130,000 a year. Should they refinance the home equity line of credit or sell the house? Dave thinks Rick has to address the marriage problem before addressing the financial issues.

ANSWER: Your wife ran up this debt and your question is about a refinance? I’m a lot more concerned about whether your marriage survives this!

Let’s address two things. Having $56,000 worth of deception and lying is a lot. Marriage issues are more important to me than getting out of debt because if you get out of debt, you’ll go back in if we don’t solve that problem. It’s good that she admits to messing up, but part of this is your fault because you financially abandoned your wife and she’s operating the whole deal by herself. She messed it up and felt guilty, and thus was afraid to tell you. It’s not all right for her to lie and run up debt, but part of this problem is you.

The way to fix this is for both of you to get involved. We are going to operate our budget before the month begins from this point forward, including cleaning up this mess. Every dollar will be spent on paper and on purpose, and you need to be in agreement on everything.

As far as paying off this debt, here’s how you do it. My rule of thumb on your refinance question is that, if the home equity line of credit is more than half your annual income, I would roll it into a refinance. Get on a written budget and heal your marriage by working together for five or six months, and let’s clean up the other debts using the debt snowball.

If you make super progress on the snowball, you may not need to refinance to knock the debt out. If you’re kind of crawling through it and not moving fast, you may have to refinance. But don’t refinance right now because I want to make sure your marriage and money-handling process gets healed first.

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