Many millions of Americans have credit cards and often generate debt beyond the resources they have available to repay. The ability to eliminate credit card debt is a goal that may seem hard to reach as the burden of debt can be enormous. One reason credit card debt grows for many people is they use credit for all types of spending when cash is tight. Homeowners are in a unique position as they can consider refinancing their home to pay off credit card debt.
Refinancing to pay off debts accumulated by using credit cards is a form of consolidation. This is used as a tool to not only pay off credit card debts, but to save money. One thing to keep in mind is the rates for mortgages still remain at low levels. The ability to refinance into a low rate is the key to being able to have a low payment that does not break the bank.
Eliminate Credit Cards
Many consumers who accumulate credit card debt pay a finance charge each month. This is a payment that is added to the amount that has already been charged on a credit card. A consumer who carries any type of balance will be paying a finance charge each month. Transferring existing credit card debt over to a refinanced mortgage will eliminate monthly interest charges. Another benefit is not having to keep track of monthly due dates.
Lower Interest Rates
The interest rates for a mortgage are generally lower than interest rates for credit cards. Refinancing of an existing mortgage may result in a lower interest rate. One way to determine if you are able to save a significant amount of money is to add together the interest charges from all your credit cards. You then need to compare this amount with the current interest for your monthly mortgage payment. Eliminating the interest assessed by credit cards is an automatic savings.
Improved Credit Scores
One of the biggest factors that is used when calculating a person’s credit score is debt. Eliminating debt from your credit report will result in an increase in your credit score. A person’s credit score will take a big hit when they have credit cards that are maxed out. Another aspect to keep in mind is paying off all your credit cards will eliminate any over limit blemishes and late payments.
The most important thing to keep in mind when refinancing to eliminate credit card debt is to keep any future charges to a minimum and pay off balances each month. Refinancing a mortgage will also allow you to pay off your debts over a longer period of time. This means determining if you should refinance with a 15-year mortgage or a 30-year mortgage.
Consumers who do not qualify to refinance a mortgage to eliminate debts, may consider other options, like credit card balance transfers, personal or unsecured loans from a bank or credit union, peer to peer lenders and other alternative loan options. When looking at options to consolidate it is important to look at the long term ramifications as well as the short term benefits, the improvement to cash flow and the lifestyle that led to the debts in the first place.