Credit card debt is incredibly easy to accumulate, and with millions of Americans in debt beyond what they can handle – eliminating credit card debt has become a large goal for many. But with a struggling economy, money is often tight and getting ahead often seems impossible.
However, according to a recent article, there is one way you can get out of credit card debt – by refinancing your home loan. There are basically four good reasons why it’s better to refinance your mortgage than to pay the high interest rates on your credit cards.
1. Your mortgage has the lowest interest rate out of all of your debt. This is true almost all of the time. Your mortgage is a secured loan, which means if you default on it – there’s something to back up the loan amount, which is your house. Credit cards are unsecured loans, and if you default on that, the bank loses the entire amount – thus making interest payments higher to compensate for that risk. By refinancing your mortgage to pay off credit card debt, you are basically swapping high interest credit card debt for lower interest mortgage debt.
2. You get more time to pay back the loan. Mortgages span across 15 to 30 years while credit cards need to be paid off by the end of the month. If you have tens of thousands of dollars in credit card debt, multiplied by the high interest rate for every month you don’t pay it off – you may be better off using the money you save from refinancing to pay off the credit card debt.
3. You will improve your credit score. Maxing out credit cards lowers your overall credit score. By refinancing into a lower rate or lower monthly payment – you can use the surplus towards paying off the mounting debt that lowers your score.
4. You are taking advantage of the currently low mortgage rates. If you bought your home over three years ago, chances are the interest rate on it is pretty high compared with today’s rates. Even if you had no credit card debt, you should look into refinancing into a lower rate to save money.
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informative aricle, i’ll definitelty apply this to my situation.
Yep… interest rate is bound to be lower, and payment spread over decades… But the cost to complete a refinance, and the newly “Open” lines of credit do not make this a good choice for most. Quicken is writing articles to support their business… not what is good for the consumer.
Hi Tom,
We actually don’t offer lines of credit. We suggest folks refinance to a lower rate and use money from their low rate mortgage (now in the 4-5 percent interest rate range) to pay down higher rate debt, such as credit card debt, which can go as high as the 30% rate. The key is that the cost of refinancing must be lower than the amount you’ll save when you pay down your debt. This is something our Home Loan Experts will go over with every client in detail and explain all numbers and scenarios. Of course, it’s always wise for anyone to speak to a financial advisor and especially a tax advisor if dealing with income tax deductions. Hope this clears up any questions you had about the article. Feel free to email me with any other questions at jennyzhang@quickenloans.com
This blog is looking really good, the information is solid. I get discouraged at times until I come across one like this!
Your RSS feed doesn’t work in my browser (FireFox 3.5) how can I fix it? I would love to subscribe to your feed