Illustration of house and credit cardsIf you follow the news, chances are you’ve noticed stories about the increase in credit card debt among US consumers over the past few months. During the financial crisis of 2008, credit card debt steadily decreased among American households, but as of this year those numbers are going up.

Credit card debt is the third largest source of debt for US consumers after student loans and mortgages. According to the Federal Reserve, credit card debt in the United States reached $890.9 billion in 2015, with the average indebted household owing more than $15,000.

Homeowners who have equity built up in their properties may have some options when it comes to paying off their credit cards. Taking advantage of low interest rates, while they last, can help you take control and pay down your credit card debt.

With so many people owing so much, it may seem like a good idea to refinance your mortgage in order to pay those credit card balances down. But before you do, find out what the pros and cons are, and how they might affect you.

Pros:

Interest rates on mortgages have been in the single digits for some time now. Even though rates are inching upward, the rate you’d get on a refinance beats what you would be paying on your credit card balance. With the average credit card interest rate hitting 14.89% at the start of this year, borrowing on the equity you’ve built up on your home might be a good option to reduce how much you’d be paying in the long run.

Another plus to utilizing your refinanced mortgage for paying down your credit card debt is the potential tax incentive. The interest paid on your home loan may be deductible, but interest paid on your credit card debt is not.

Depending on how many credit cards you have, and how many have a revolving balance, refinancing can help you simplify your financial situation. Rather than paying down multiple credit card balances with varying interest rates, you’ll be able to pay down your debt with a single payment and one interest rate.

The amount you can borrow against your home can be much higher than a typical loan. If you’re having trouble getting approved for a loan, or for a low interest rate credit card to transfer your balances to, refinancing may be a better option. You might be able to borrow up to 85% of your home value, depending on your lender.

Cons:

Refinancing your home in order to eliminate credit card debt can be a risky move. You’re essentially putting your house on the line. If you’re worried you might not be able to stick to a disciplined financial plan to stop adding to your existing credit card debt, refinancing may not be your best option.

Depending on what type of home loan you take out, refinancing may cost your more in the long run and get you into trouble. An adjustable rate mortgage can save you money, but if you’re planning on taking some time to pay down your debt through refinancing, your rate could potentially go up, negating any gains you’ve made on eliminating your debt.

The added costs of refinancing might make borrowing against your home a more expensive option than simply paying down your credit cards. When considering a refinance, don’t forget to add in the impact of closing costs and fees.

Depending on how much you owe, refinancing to pay off your credit cards may simply prolong the amount of time you remain in debt and the amount of interest you’re paying on it.

Depending on what your goal is, using a refinance to pay down your credit card debt might be a good option. Evaluate your financial situation, consider all of your options, and see if a refinance is right for you.

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This Post Has 22 Comments

  1. We brought our home a little over a year ago. We have accumulated $19,000.00 in credit card debt with home improvements. we have never been late on any of our bills or credit cards, but since buying the home and accumulating the credit card debt, we haven’t been able to put anything away for a rainy day which is very uncomfortable for us. Also having the high balance credit cards have impacted my credit score negatively. Now that the house is complete, we would like to pay off the credit cards and cut them up! We would also like to include a car loan so we can get back to saving 20% of our salary. What are our options.

    1. Hi Martina:

      We can certainly look into your options for that consolidation. If you want to go over your options online, you can get a full refinance approval through Rocket Mortgage. Otherwise, one of our Home Loan Experts will be happy to take your call at (888) 980-6716. Good luck!

      Thanks,
      Kevin Graham

  2. I owe 98k on my house and it was valued at 138k before we remodeled it I owe about 35k in a car and credit cards and would like to pay them off and just have one payment. What are my options? Thanks!

    1. Hi Sarah:

      It sounds like you want to take a look at debt consolidation. We can help with that. You can check out your options and get a full refinance approval online through Rocket Mortgage. On the other hand, if you would like to speak with one of our Home Loan Experts, you can call (888) 728-4702 and someone will be happy to help go over your situation.

  3. I keep seeing that’s below are minimum for doing a refinance, what is your minimum amount for a refinance?

    1. Hello, Shawn! I hope you’re having a good holiday weekend. The minimum amount often depends on a few variables, so I’m going to have one of our home loan experts reach out to you. They’ll send you an email, ask a few questions and then point you in the right direction. Thanks for your comment, and have a nice day!

  4. I need to refinance $35000 I owe. I have to pay this off in no more than 5 yrs. my current interest rate is 5.25 or so. I need to lower my interest rate. What can u do?

    1. Hi Carlos:

      I’m going to have someone reach out to you about this so we can look into your options.

      Thanks,
      Kevin Graham

  5. what is the interest rate on a personal loan?from rocket loans I want to refinance a new vehicle and also payoff credit cards open a house but don’t want to mess around with it because my interest rate is very low

    1. Hi Allen:

      I can get you in touch with someone from Rocket Loans. I can tell you that it’s very difficult to give an interest rate estimates because so much is dependent on your personal financial profile. Someone will be reaching out.

      Thanks,
      Kevin Graham

  6. I need to pay off credit cards. I would like to refinance and just have one payment. I have no other vigils, such as car or furniture. Please help. Thanks, Alice

    1. Hey Alice:

      We can definitely help you look into your options. Someone will be reaching out.

      Thanks,
      Kevin Graham

  7. Want to know what is my best option to pay off my credit cards without refinancing thru quickens loans. Thanks

    1. Hi Anthony:

      If you don’t want to refinance your mortgage, you can definitely take a look at the personal loan from our friends at Rocket Loans. Hope this helps! Good luck!

      Thanks,
      Kevin Graham

  8. my home is paid for i want to make a loan to pay off credit cards just to have one bill and do some work on the house i only want to finance $1,7000,

    1. Hi Michael:

      Unfortunately, that’s below the minimum mortgage amount we finance. You might be able to take a look at a personal loan from our friends at Rocket Loans. Hope this helps!

      Thanks,
      Kevin Graham

  9. HI my house valued for 305,000. and my lone is 194,000. I want to refinance then I can fix the roof and change the floor. Is it possible to refinance to get cash out for house improvement?

    Thank you
    Rahel

    1. Hi Rahel:

      I can definitely have someone reach out to help you go over your options and see if we have a loan that makes sense for you.

      Thanks,
      Kevin Graham

  10. I have two homes. I only owe 20k on one and 114000 on my main home. I also have abour 40k in the main home. I would to refinance the main for enough to cover both. Thank you

    1. Hi William:

      We can certainly help you look into your options. Someone will be reaching out.

      Thanks,
      Kevin Graham

  11. I purchase a house with credit cards and now I want to get a loan to pay off my credit cards. I own 2 other houses valve @ $148000 owe $97000. the house that I purchase is value @$45000. I just want finance $25000. Thanks

    1. Hi Cecil:

      If you only want to finance $25,000, that’s below the minimum amount for us to give you a mortgage. However, we have a sister company Rocket Loans and I can have them reach out about personal loan options.

      Thanks,
      Kevin Graham

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