Carol, a caller from Toronto, told The Ramsey Show she and her husband had been using their home equity line of credit "like a giant credit card." She said they initially took out the HELOC for home improvements, but after some investments "essentially went to zero," they began spending with it.
Hosts George Kamel and Jade Warshaw expressed surprise at the household's financial details. Carol reported an annual income of about $500000, with roughly $300000 in take-home pay. She said they carry a $400000 HELOC alongside a $750000 mortgage on a home valued at approximately $2.5 million.
"Oh my gosh, woman," Warshaw said upon hearing the numbers. Kamel asked, "You couldn't cash-flow the renovations making half a million dollars?"
When asked about monthly spending, Carol said they take home about $25000 monthly but spend most of it on private school for three children and the HELOC. "Your burn rate is high here. You've got a lot of expenses going on," Kamel said.
The hosts discussed whether Carol should roll the HELOC into her mortgage. Warshaw noted housing expenses should not exceed 25% of take-home pay. She said if Carol could roll the HELOC into the mortgage at a 2.9% interest rate and keep payments within 25% of income, it might make sense.
Kamel said interest rates were not his main concern. He advised that if Carol could reduce spending, she should aggressively pay down the HELOC quickly, then do the same with the mortgage. "I would keep the HELOC separate and make an aggressive goal to pay this off in, let's say, three years," Kamel said.