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Credit Cards Out of Control? Is Refinancing Right for Debt Consolidation

by Gabriel  Traverso
Mortgage Directory Columnist

It is fairly common for homeowners to turn to their home equity as an answer for out-of-control credit card debts. When you're sitting on equity and have bills you're struggling to pay, then home mortgage refinancing starts to look attractive. Before you take out a second mortgage or look into refinancing, make sure to weigh out both sides of the issue.

Refinancing Isn't Necessarily the Answer

Credit card spending is a growing problem today for many Americans. In fact, last summer MSNBC reported that the average household has debt exceeding its income. If you have credit cards and other accounts that have grown beyond your ability to pay them, then it seems logical to look to the equity you have in your home as a means to solve the problem. Unfortunately, this solution is a double-edged sword: it fixes things in the short-term, but can cost you much more in the long-term--especially if you don't change your spending habits.

The Allure of Home Equity Borrowing

For many homeowners, refinancing is an ideal move. If you have enough equity in your home--more than 30%, let's say--and have a higher rate than the average fixed-rate mortgage available today, then refinancing could be the ideal next step for you to take. Make sure, however, to consider all the factors. How long have you been paying off the mortgage you have now? If you're 10 or more years into a 30-year loan, refinancing might not be the right answer. In this case it might make more sense to consider a home equity loan.

Remember when you use your home equity to pay off credit cards, you are converting short-term debt to long-term debt. Even though you can write off the mortgage interest, this move could cost you more in the long run. Before refinancing, make sure to plan how you'll change your spending habits to avoid a repeat of the problem.


About the Author
Gabriel Traverso is a freelance writer, independent musician, and artist. He resides in Reno, NV.

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