Homeowners Erase Credit Card Debt Through Mortgage Refinancing–Can Equity Pay Off Credit Card Debt Fast?

There have been homeowners who are using their home equity as a way to pay off their credit card debts faster. Credit card debt relief is something that many individuals are seeking as difficult financial times or bad financial practices have caused many to get in over their head with credit card debt.

Homeowners are using cash-out refinancing as a way to gain the funds they need from their home to erase their credit card debt. Cash-out refinancing allows a homeowner to refinance their mortgage to a higher amount, which typically will only be an increase equal to the amount that they owe on their credit card debt, and homeowners are given this difference in cash, which many use to apply toward debt.

While some homeowners have benefited from cash-out refinancing due to the fact that they have been able to quickly erase various credit card debts, there are financial advisers who warn against doing this because it could lead to mortgage trouble down the road. Essentially, cash-out refinancing is attaching credit card debt to a homeowner’s mortgage, which can come with a lower interest rate but is also secured debt.

The fear that comes from cash-out refinancing is that homeowners who have poorly managed their finances may be unable to meet this higher mortgage amount, and if mortgage payments become difficult in the future, a homeowner will not simply have to default on credit card debt but could lose their home.

Yet, over the past months there have been homeowners who have wisely used cash-out refinancing in order to erase their debts and focus money towards their mortgage payment, which can lower overall costs and will decrease the likelihood that a homeowner misses mortgage payments or faces default. Cash-out refinancing has helped some homeowners, but it will not be beneficial for everyone who seeks to rid themselves of credit card debt.

However, smart financial practices, responsible budgeting habits, and gaining control over one’s spending with credit cards can help a homeowner who uses cash-out refinancing to pay off their debts. Yet, financial advisors often caution homeowners and tell them to do a great deal of research on how cash-out refinancing will specifically affect their mortgage situation before they proceed with this type of refinancing.