Refinancing doesn't stop debt problems The Debt Adviser by Steve Bucci • Bankrate.com

Dear Debt Adviser,
We are in a situation where we owe $250,000 on our mortgage and $88,000 on our second mortgage. We also have $30,000 in credit cards and owe $37,000 on our car. Plus we are paying college bills. We bring home $7,500 per month but now are behind and can't seem to see light. Would it be in our best interest to refinance the whole amount into a mortgage?
-- Patti

Dear Patti,
As a kid, I loved the Lone Ranger. A joke went that as he and Tonto were surrounded by hostile natives and out of bullets, the masked man said "Tonto, we are in trouble." Tonto replied, "What do you mean 'we,' Kemosabe?"

I always worry when only one person writes about a couple's problem. Accumulating $405,000 in debt tells me you guys are not on the same page on spending. A critical piece to a successful solution will require both of you to be in sync on the solution or things will only get worse.

If you consolidated everything into a mortgage at today's mortgage rates, it would be $405,000 at 6 percent fixed interest for 30 years and your payment would be $2,428.18 per month.

Given that information, there are a few questions you should ask yourselves.

Questions to ask:

• Do you consider your jobs and marriage stable enough to meet that commitment without fail? • Is your house worth that much money? You don't want to be upside down in a mortgage, that is, owing more than it is worth. • Are you comfortable converting short-term unsecured debt into long-term secured debt? In short, you would be risking your home.

To help with the last question, please review the tables below and determine if what you will save each month in payments is worth the extra money it will cost in interest.

The cost of consolidation

Size of loan Additional interest Payment Consolidation of mortgages into one $338,000, 30-year fixed rate mortgage at 6 percent interest rate N/A Monthly payment: $2,026 Add car loan into mortgage at 6 percent interest rate for total loan of $375,000 Additional interest paid for life of loan: $42,860 New monthly payment: $2,248 Add credit card debt into mortgage at 6 percent interest rate for total loan of $405,000 Additional interest paid for life of loan: $34,751 Monthly payment: $2,428

Based on the above, you would be saving money in monthly payments in the short term but paying much more money in interest in the long term. In addition, you are guaranteeing all your payments with your home. Should you default on your payment, you could lose your home.

Another option for you may be to take a look at your expenses and see if you can make some changes so your monthly income and monthly expenses are more in line. Your options include downsizing and moving into a less expensive house with a smaller mortgage, trading down to a less expensive car, and cutting back on other expenses to bring your finances into shape. I can't tell if the college bills are yours or your children's, but in either case look to stretch payments out taking advantage of low interest rate student loans.

One action you must take, if you are to be successful with either choice, is to stop using credit. Spend less than you earn or my experience tells me that your finances and your marriage are likely to face a huge penalty for early termination!

For specific help, the two of you might consider visiting a credit counselor. You can find qualified, legitimate help at www.aiccca.org or www.nfcc.org.

Good luck!

The Debt Adviser, Steve Bucci, is the president of Money Management International Financial Education Foundation and the author of "Credit Repair Kit for Dummies." Visit MMI for additional debt advice or to ask a question of the Debt Adviser go to the "Ask the Experts" page and select "debt" as the topic.