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Consolidation Guide
Should I Refinance My Home to Pay Off Credit
Card Debt?
When debt becomes a problem, there are
numerous
options for a consumer to consider. One popular solution is
to refinance a home. By taking
out a second mortgage on a home, the consumer effectively rolls
the debt into what is usually a lower interest loan. In many
cases, this loan will have a lower monthly payment then what the
consumer would have to make in credit card payments. With these
advantages, it would seem that refinancing a home would be the
optimal solution for paying off a large amount of credit card
debt. However, before tapping into your home equity and getting
that second mortgage, there a few drawbacks to consider.
You will be turning unsecured debts into a debt that is
secured by your home. Credit Card debts are unsecured,
meaning you will most likely not lose any property (such as your
car or home) in the event that you cannot make your payments.
However, when you refinance your credit card debt with a
home equity loan, you are
turning those unsecured debts into a debt that is secured by
your home. If you default on the new loan, you may lose your
house, and your creditors will most likely not even have to take
you to court.
It may be difficult to obtain a home
equity loan if you already have substantial debt. If you
are already in debt or,
particularly, if your credit is
not great, it may be difficult for you to qualify for a
second mortgage. If you do
qualify, it may be not be on beneficial terms. It is important
to look carefully at the fees and interest you will pay.
If you are in
credit card debt, it is wise to carefully consider all of
your options. Refinancing your
home to pay off your credit cards is just one such option,
and may or may not be the right option for you. If you
need help deciding what the best
option is for you, you should contact an
accredited credit counselor
who can discuss these options with you.
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