Retiree with $2.8 million in homes is warned against debt trap

A 67-year-old homeowner with two mortgage-free properties worth a combined $2.8 million has been told that using a home-equity line of credit to wipe out $19,000 in credit-card debt may help with interest, but will not fix the bigger cash squeeze.

The case was raised in MarketWatch’s The Moneyist column, written by Quentin Fottrell, after the homeowner said she owns the homes outright with her adult son. She lives in one property, while her son, a disabled combat veteran, lives in the other.

The homeowner told Fottrell that her income is low, her credit-card balances total about $19,000, all accounts are current and her credit score is around 790. She said she has no car loan.

Her annual property-tax bill across the two homes is $15,000, according to the column. Her son pays property taxes and utilities, she said.

The family is also dealing with a health and benefits issue. The homeowner told The Moneyist that her son was recently diagnosed with lymphoma, which she said may be tied to burn-pit exposure from his military service in Afghanistan. She said that if his Department of Veterans Affairs disability rating rises to 100%, he may be eligible for a sizable property-tax cut or exemption, depending on state rules.

The HELOC question

Fottrell’s answer began with a warning: paying off credit-card balances with a HELOC means replacing unsecured debt with debt backed by a home.

Still, he wrote that a HELOC could be cheaper than the credit-card interest she is likely paying now. Fottrell estimated that a loan carrying an 8.5% to 9.5% rate would mean roughly $142 to $160 in monthly interest on $19,000.

By contrast, he said credit-card APRs are probably in the 15% to 29% range, which would make the monthly interest cost roughly $240 to $460.

Fottrell said the homeowner’s strong credit score shows she has been keeping up with her bills. But he argued that relying on food delivery and house cleaning to cover costs is not sustainable for a 67-year-old who has substantial equity but little income.

Property rich, cash poor

The Moneyist framed the central issue as an imbalance between home wealth and available cash. Fottrell wrote that the homeowner and her son need to look at whether two homes remain affordable.

He suggested rental income as one possible move, including renting out the son’s house or renting a room in either property. He wrote that $3,000 a month in rent could clear the credit-card debt in a year.

Fottrell also pointed to possible veteran-related help. If the son’s illness is linked to burn-pit exposure and his disability rating increases, Fottrell said he could receive more VA compensation and property-tax relief. He also said the son should seek free financial assistance available to veterans.

The column said other options may include the son finding housing through Veterans Affairs, moving in with his mother temporarily, or looking into grants for disabled veterans to modify a primary residence.

The harder fix

Fottrell urged the homeowner to figure out whether the card debt came from a one-time expense or regular living costs. If her expenses keep running above income, he wrote, refinancing the balance would only delay the problem.

If the income crunch is temporary while the family waits for a VA decision or better employment, Fottrell said a lower-interest loan could serve as a bridge.

If renting does not work, he said the family may need to downsize or sell one home to unlock some of the $2.8 million in equity. He also mentioned a reverse mortgage on one property as a possible option if it provides enough support.

Fottrell’s bottom line was blunt: the homeowner should act before her choices narrow, because carrying two homes while working gig jobs at 67 may be more burden than retirement plan.

This story draws on original reporting from MarketWatch.