Are you a homeowner with substantial
debts? Have you asked yourself “should I refinance” and use that money to pay
off my debt? Refinancing your mortgage to consolidate debt might be a good
solution and could save you a lot of money.
Paying credit card debt by refinancing
your mortgage means that you are accessing the equity in your home – using the
value of your home – to borrow against. This can mean that a substantial amount
of money is available for you to use to pay off your debt. So what are the
benefits of doing this?
Firstly, say for example you owe 40 000
in credit card debt. All cards have minimum monthly payments that you are
required to make – but these do not in their entirety go onto your outstanding
balance. Monthly payments are usually made up of interest and payment on the
balance, however, the majority of this goes to interest, meaning that you are
actually only putting a tiny amount onto the outstanding debt. That 40 000
dollars can take way too long to pay off!! Since credit card interest is often
very high, refinancing your mortgage to consolidate debt allows you to save a
lot of that interest.
Secondly, refinancing your mortgage to consolidate debt allows you to lower you monthly payments considerably in order to avoid the accumulation of more debt. If you are struggling to make the minimum payments, chances are your debt isn’t actually decreasing at all, and you may just be increasing it through continued use. By consolidating your debt you are able to reduce your monthly debt payment and take control of your financial situation. Furthermore, since your required monthly payment is lower, you will have extra monthly cash flow and when able, can just pay more directly to the balance owed.
Another good reason to refinance your
mortgage to consolidate your debt is to improve your credit. Even if you make
the minimum required payment on each of your credit cards, having several cards
with high balances can negatively impact your credit rating. High balances make
it seem as though you are unable to manage your finances in relation to your
monthly income, and therefore you may seem like a high risk investment. By
refinancing your mortgage and using the value of your home to pay off debt, you
can fix this problem.
Banks versus a mortgage broker – which
option is best? Since this is a financial issue, your first thought might be to
go to the bank and try to get a consolidation loan. However, as a homeowner,
there are far better options available to you. Since banks are often the
financial institutions that control your credit cards, it is in their best
interest to keep you paying the minimum monthly payment (much of which is just
interest). It means way more money for them if you just continue to pay
interest. Banks are also often much stricter when determining who qualifies for
a loan, and so going to a mortgage broker means a better chance of getting the
money you need to get those debts under control.
There are many things to consider when
asking yourself “should I refinance.” Refinancing your mortgage to consolidate
debt can be an important solution to getting control of your debt and saving
money.
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