Repaying Credit Card Debt With Consolidation–Homeowners Use Equity To Erase Unsecured Debts

When it comes to repaying debts like credit cards through consolidation, there are homeowners who have used their home equity as a way to erase credit card debts by essentially tacking on these debts to their mortgage. This option called cash-out refinancing has been used by homeowners who have equity in their home and may be facing unsecured debts which are problematic, in terms of their monthly costs.

Homeowners who use this option for erasing credit card debt have usually been in a decent financial position, meaning they can afford the costs that come with refinancing and will benefit from refinancing rather than receiving a higher mortgage payment or interest rate. Yet, homeowners in this predicament do have to refinance for more than they owe on their home, which again, essentially means that the equity that is used to pay off credit card debts has not truly erased debts which they owe, but has placed these debts onto a homeowner’s mortgage.

Obviously, this has been beneficial for some homeowners who may have credit card debts which were causing problems even when they were able to meet minimum monthly payments on these debts. Homeowners who were only paying the minimum amount on their credit cards, though, often see that interest begins to build and a higher overall cost may be paid once all is said and done.

Yet, overall cost has been one of the arguments that some advisers have made against cash-out refinancing as homeowners are increasing the amount of time and overall payment they must make on their home. However, homeowners have argued that by refinancing their home with a cash-out option and erasing credit card debt with these funds, consumers are essentially refinancing credit card debts onto a much lower interest rate then had they kept their cards active and attempted to combat credit card interest rates.

However, advisers have often cautioned homeowners against cash-out refinancing unless they look over their personal financial situation and make sure they can afford this type of debt relief and consolidation. Some homeowners who have benefited more so from cash-out refinancing are those who have paid more than their minimum monthly mortgage payment requirement so that they can overcome this added cost which was incurred when refinancing to erase credit card debt, but essentially, advisers make it a point to warn homeowners against acquiring more debt after they use cash-out refinancing, as this could obviously cause more financial difficulties and the possible loss of a home if the higher mortgage debt amount cannot be paid.