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Cash-out refinancing and debt consolidation

Posted by  on Nov 02, 2010
 

Credit card debt has fallen to its lowest level in eight years, according to TransUnion. That's good news overall, but probably doesn't make you feel too hot if you're wallowing in your own debt. You may be searching for a solution to your debt woes and wondering if it makes sense to apply for a cash-out refinance to consolidate debt.

Credit card debt and delinquencies fall

The TransUnion analysis found that average credit card debt, which is defined as the aggregate balance on all bank-issued credit cards for an individual borrower, fell 13.4% to $4,591 from in the second quarter of 2010 from $5,719 a year earlier. Credit card delinquencies also fell by 21.3% from a year earlier.

Whether your credit card debt far surpasses the average or is a more modest total, here's why you may have difficulty qualifying for cash-out refinancing.

  • You've lost too much home equity. You'd have to be living in the middle of nowhere with your head stuck in the sand not to know that millions of homeowners in the U.S. are underwater on mortgages, owing more than their homes are worth. If you're in this category, you can pretty much forget getting approved to pull additional cash from your home.
  • Your credit stinks. About a quarter of all U.S. households have FICO scores below 600, according to Deutsche Bank. Most of those people are unlikely to qualify for a mortgage, auto financing, or even a credit card. Having too much debt and not being able to pay if off is a catch 22. You may have good intentions to pay back the money, but just don't have enough income to do so or qualify for a refinance that could help your situation.
  • Mortgage lenders just don't want to lend to you. The fact is that some mortgage lenders just don't want to take on too much risk these days. For that reason you may find yourself being turned down for a home refinance even if you have good credit and a decent amount of home equity. Mortgage lenders are looking for reasons to say no; for example, some families expecting a baby have been denied refinancing because of the possibility that a new mother may leave the workforce, causing a significant drop in household income.

Pros and cons for cash out refinance

Even if you qualify to take a cash-out refinance should you? Not if building equity in your home is important to you. Even with the best mortgage rates available right now, tapping home equity with a cash-out refinance increases the amount of your mortgage principal. Over the long term, you could end up paying even more in interest payments than with your original mortgage loan. Also, its never a good idea to use home equity to consolidate debt if you just go out and run up credit card balances again.

 

 

Credit card debt has fallen to its lowest level in eight years, according to TransUnion. That's good news overall, but probably doesn't make you feel too hot if you're wallowing in your own debt. You may be searching for a solution to your debt woes and wondering if it makes sense to apply for a cash-out refinance to consolidate debt.

Credit card debt and delinquencies fall

The TransUnion analysis found that average credit card debt, which is defined as the aggregate balance on all bank-issued credit cards for an individual borrower, fell 13.4% to $4,591 from in the second quarter of 2010 from $5,719 a year earlier. Credit card delinquencies also fell by 21.3% from a year earlier.

Whether your credit card debt far surpasses the average or is a more modest total, here's why you may have difficulty qualifying for cash-out refinancing.

  • You've lost too much home equity. You'd have to be living in the middle of nowhere with your head stuck in the sand not to know that millions of homeowners in the U.S. are underwater on mortgages, owing more than their homes are worth. If you're in this category, you can pretty much forget getting approved to pull additional cash from your home.
  • Your credit stinks. About a quarter of all U.S. households have FICO scores below 600, according to Deutsche Bank. Most of those people are unlikely to qualify for a mortgage, auto financing, or even a credit card. Having too much debt and not being able to pay if off is a catch 22. You may have good intentions to pay back the money, but just don't have enough income to do so or qualify for a refinance that could help your situation.
  • Mortgage lenders just don't want to lend to you. The fact is that some mortgage lenders just don't want to take on too much risk these days. For that reason you may find yourself being turned down for a home refinance even if you have good credit and a decent amount of home equity. Mortgage lenders are looking for reasons to say no; for example, some families expecting a baby have been denied refinancing because of the possibility that a new mother may leave the workforce, causing a significant drop in household income.

Pros and cons for cash out refinance

Even if you qualify to take a cash-out refinance should you? Not if building equity in your home is important to you. Even with the best mortgage rates available right now, tapping home equity with a cash-out refinance increases the amount of your mortgage principal. Over the long term, you could end up paying even more in interest payments than with your original mortgage loan. Also, its never a good idea to use home equity to consolidate debt if you just go out and run up credit card balances again.

 

 

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