We've Been Using Our HELOC As A Giant Credit Card

[Music] brought to you by the Every Dollar app. Start budgeting for free today. >> So, we had a series of kind of unfortunate events that took place over the pandemic and it caused us to take on quite a bit of bad debt. So, we made improvements on the home uh with plans of investments coming through and those investments did not to come fruition and essentially went to zero. So since then, we've been really treating our um HELOC like a giant credit card uh prior to me finding this this podcast. So I'm in Canada, so our mortgage is up for renewal in June. I'm in baby step two and the amount of the heliloc is so overwhelming that I feel like I'm not sure whether I should be rolling it into our mortgage in June or whether we should be continuing for the next five or six years on paying it down keeping in mind that I have, you know, three kids who are looking to go to university in the next 5 to 8 years. So, um yeah. >> How much is the heliloc? >> So, the heliloc is at 400,000. >> Oh my gosh. What's your income? >> So, our income uh well, okay, before or after tax? We've got some pretty hefty tax before tax. >> Oh, before about 500 a year. >> Oh my gosh, woman. >> Yeah, >> you could cash flow the renovations making half a million dollars. >> Meet Every Dollar Budgeters Christy and Steve. Their life is chaotic, but their money is simple because they budget with every dollar. Budgeting with the spreadsheet took a ton of time, >> but now with every dollar, I can do a budget in 5 minutes. >> And tracking purchases is just as simple. >> It's so freeing to know exactly where your money is going. >> It just takes that stress out of the day-to-day life. You got this, Hanigan family. Every dollar. Create your free account today. >> You couldn't cash flow the renovations making half a million dollars. Yeah, I but after tax it's only about 200 300 a year is what we take home. >> Okay. >> Okay. Well, what's your >> like it's significant taxes. >> What do you owe on the house aside from this? >> Yep. So, we have a mortgage for 750,000 and that's at 3.6%. But the house is valued at 2.5 million. >> Okay. What's the what's the percentage on the HELOC? What's the interest? >> It's 4.5. >> Okay. And then what other debt do you have outside of the mortgage and heliloc? >> That's it. Okay. That's it. >> I thought you were gonna hit me with a bunch of consumer debt. All right. >> No, because it's all rolled into one. And I think I've never heard I've been binging this and I've never heard how you attack just like one big >> Yeah. >> Generally, here's our parameter with HELOCs. If it's over half your annual income, we say, "Hey, roll it into your baby step six, which is when you pay off the mortgage." So that's when you would pay it versus in baby step two with other consumer debt. Since you guys have no consumer debt, do you have an emergency fund? Do you have savings? >> Uh, we just started that. We Well, we have some education savings um for about 50 grand for for the kids right now. >> Um and then just retirement fund. We have maybe a couple hundred thousand, but um other than that, not really. >> Do you have anything in cash? Like if you had an emergency today, how would you pay for it? >> Um I already did baby step one, so I have we probably have about 5,000 in cash. >> Okay. But your next paycheck is going to be sizable. You're you're going to make like what 25 grand on the next check? >> Uh yeah, like per month. Uh my husband and I are Yeah, we bring home around 25 grand a month. >> Okay. How much of that could you throw into a savings account next month, for example? >> Uh if I wasn't putting it towards the heliloc, then probably seven grand. >> So you guys are spending close to 20 grand a month. >> Um I'd say are spending uh kids are in private school. Um, our the interest on the heliloc is about 1,800. So, yeah, like I'd say we spend around 12 grand a month on thing. Yeah. >> The private school for all three kids. >> Yes, >> man. That's that's a real That's your burn rate is high here. You've got a lot of expenses going on. I'm guessing we're not going to put them in public school to clean up this mess. >> Well, they're almost out. So into um like to middle school. So that's going to change and it get better over the next couple years. I just I didn't want to feel like I was rolling the heliloc into the mortgage and kicking the can down the road and whether I should, you know, roll some of it in and then keep some of it and and attack that really fast. I'm not sure. >> I kind of like them broken up just for I mean is the HELOC going to have a variable right here? >> Ask the same thing. It's currently variable, but again, in June, we signed the next 5-year mortgage, so it would lock in at whatever the interest rate is, which is >> God bless the strangeness of Canada. Every five years, we reset the mortgage rates. >> What's going to be the new mortgage rate when you renew in June? Because it's going to it's 3.6 now. What's it going to go to? >> Uh, it probably go down. So, between 2.9 and 3.2. >> Interesting. So, if you have you done the math if you if you did that, what percentage of your income would this mortgage be? So that would move us from the 25% to about 29 to 30% of house expenses >> on a 30-year or are you doing a 15-year? >> Uh we haven't discovered that yet. My calls tomorrow with the bank. >> Okay. My guess is Well, they don't do the 30 and 15. You have like a 5year. >> Oh, that's it. >> Yo, you still do like a 15 or 20 year, but every 5 years you revisit it and you get to redo it. >> Okay. How often does the rate on the heliloc variate? >> It's variable. So was high over couple years but dropping now. Um it's every month that the interest comes out but then just depending on what the you know Bank of Canada does the interest rate goes up and down. >> Okay. >> If there was a world where you locked this in at 2.9 and it was 25% of your take-home pay and it kind of fit those same parameters, it it wouldn't bother me. Um, I don't mind it being separate though for the idea of you really getting after it. I'm afraid that if you roll it in, you won't get after it the way you need to and you'll kick the can down the road. >> Okay. Okay. So, there's maybe a a point in which some of it we roll in as long as we keep that 25% into the home from our income. >> Well, the the the rule of thumb here is you don't want your mortgage to be any more than 25% of your take-home pay. So after taxes, you don't have to think about, you know, insurance and investing and all that jazz. I'm just talking about after taxes. You don't want it to be more than 25% with allin with HOA fees, insurance, all of that because once you get above that, it can be it can be too much of your world. So that's that's kind of what I was looking at at 4.5 on 400,000. Yeah, I I wouldn't want to see that. >> I wouldn't want that on a variable rate. Let me just say, >> I just feel like I'm less emotionally attached to interest rates. I could give a rip at this point. I just want to see you guys plow through these debts. And so, personally, I would keep the HELOC separate and make an aggressive goal to pay this off in, let's say, 3 years. It's 133 grand a year. That's 11 grand a month. Come hell or high water, we're going to throw 11 grand a month at the HELOC. >> Is that something you guys could do? >> Yeah, I think we could. I just needed to know. I just I've heard that uh last week it was like if it's half more than half this, you roll it in. And I just wasn't sure if there was a difference. >> It's not about rolling it in. It's about where you're attacking it. So, >> yeah, the timing of it. And so, for you guys, since you don't have consumer debt, you're just looking at these two debts going, "What do I do with these?" I would just plow through. If you can do more than 11 grand a month, be my guest. I'm just throwing a a random goal out there. You and your husband should sit down tonight and go, "We got to clean this up." And to that end, I might delay some of the the kids stuff. Like, we got time to catch up on that. Right now, we've got this thing eating our lunch with these giant mortgages and helocks. So, I would work to knock that out and then knock the mortgage out cuz now you know if we can do 400 in 3 years, well 750, we could probably knock that out in >> less than 6 years. >> Okay, >> so think about that. In 9 years, you've got the kids off to college, right? >> Yep. >> And you have no mortgage, no HELOC. So, that's the kind of future I want you guys to start envisioning and then reverse engineer it to go, okay, what do we got to do today, this month to get there? >> Awesome. Thank you so much. >> Yeah, absolutely. Thank you so much for the call. >> That's a good question. >> Love hearing from our Canadian uh listeners just to know that there Canada has its own problems. You know, people are making crazy decisions all over the world. >> All over the world. >> But America goes first. We're like, you know what? We're going to show you the way with the heliloc to do all the renovations and go into all the consumer debt. But the good news is they have an amazing income. >> They do. And that Yeah. >> It's hard to like feel bad when you're making half a million even after taxes. $300,000. Quite the shovel, but you can see you just, you know, make decisions with bigger zeros on the end when it comes to >> Exactly. It's very relative in that way. Um, but yeah, this is >> Yeah, I'm more money, more problems. >> Yeah. But here's the thing. You got to just take, you know, baby steps one thing at a time. >> And also, what can we do to decrease our lifestyle and expenses? Cuz even with 25 grand, you can see how quickly can disappear when you got, you know, the cleaners, the private school, this, that, the other, the heliloc, the mortgage, it just eats away at even the highest incomes. And so, you got to get control. Live on less than you make. And if you get a raise, ignore it, and just invest the difference. Give more, save more. That's the key to becoming truly wealthy. And I think Carol and her husband will get there in no time. Create your free every dollar budget today. The simplest way to budget for your