Credit Card Debt
High interest credit card debt cripples people who charge more than they can afford. If we could all pay off our credit cards in full each month, chances are we wouldn’t be using them so often! Making late payments then causes us to pay even more in late fees and sometimes, an across-the-board interest rate increase on all of your credit card accounts.
If you’re a homeowner, you’ve probably considered refinancing the house to pay off your credit card debt to give yourself a new beginning. As with any financial decision, there are advantages and disadvantages to refinancing your mortgage to get out from underneath credit card debt.
Paying off Credit Cards with a Mortgage Refinance: Disadvantages
When you refinance your mortgage to pay off credit card debt, you will more than likely be able to save interest but it isn’t the perfect solution. You may be wondering is refinancing is a good idea. Refinancing typically requires closing costs, which could be in the $3,000 range. There are some lenders who will help you out by rolling this amount into your mortgage, but you still end up paying for it, and if you choose to pay for it by rolling it into the mortgage, you’re doing that with interest, too.
Paying credit cards with money taken from a mortgage refinance means you are putting your house on the line as collateral. If for any reason you can’t keep up with the mortgage payments now that you’ve included your credit card debt in them; the lender could take your home. If you decide to refinance to pay off credit cards, you should be 100% certain you’ll have no problems repaying it.
Another disadvantage of refinancing your home to get rid of credit card debt can be experienced if you try to sell your home. If you borrow more against your home and then attempt to sell it, it’s more likely that you will not be able to sell the home for the amount you still owe on your mortgage. Just because your house is appraised for a certain amount does not mean you can get that when you put up the for sale sign. If you’re looking to sell your home in the near future, you may not benefit from refinancing the home to pay off credit cards because it could make it difficult to sell the home for more than what you owe; or to even break even with our current economic condition.
Paying off Credit Cards with a Mortgage Refinance: Advantages
Despite the potential disadvantages to refinancing a home to pay off credit cards, there are of course great benefits to doing so. If you are finding it really hard to keep up with all of your bills each month, refinancing consolidates some of those accounts, reduces interest and can sometimes give you a lower payment which will help you considerably. As you are better able to make your payments on time each month under the new arrangements, you’ll also start noticing an increase in your credit score, which will help you over the long term.
Most people find refinancing their mortgage to be a great option if the amount they can obtain from the refinance is enough to completely pay off their credit card debt (and maybe even enough to pay personal or car loans, too). It works like a debt consolidation loan, with the exception that you are securing the debt through your mortgage. Having a single payment each month for each of your various accounts can certainly help your financial situation.
Another way to move your debt around would be to use a 0% balance transfer credit card.
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Do YOU agree? Is a home refinance for credit card payoff a good idea? Let me know in the comments below…