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Is Refinancing Your Home To Pay Off Credit Card Debt A Good Idea?

Posted by  on Apr 16, 2009
 
As simple as the question of whether to pay off your credit card and other debts by refinancing your home, there are a variety of factors that must be taken in consideration.

Each situation is different, and if you are someone who recently moved into a new house, and ran up those credit card bills trying to furnish the place, it may or may not yet be time to refinance. With the current housing market in a bit of disarray, many in this country are finding out the hard way that property values (like anything else) eventually level off. An increase of people obtaining an Adjustable Rate Mortgages (ARM) instead of a fixed rate loan, with the theory that their house was going to increase in value quite a bit in a year or two and they would just sell it and make enough profit for a down payment on their next home, have come to find themselves in a bit of a hole as their adjustable rate continues to rise as they find themselves unable to sell their home.

For most people facing this situation, and currently running up the debt on their credit cards, there is hope in site. Fixed rate mortgages are still at record levels in compared to what they have reached over the last century. Remember, that paying an interest rate of 13% or higher in credit card debt can be quite a bit worse in the short run than paying that amount spread out over 30 years on a 6.5% fixed rate mortgage.

For those of you already in a fixed rate mortgage in the same situation, you might want to consider the possibilities of spreading out your current debt by refinancing to a longer term. For instance, if you currently have a 15 year fixed rate mortgage, you might want to look into a 20 or 30 year fixed rate. Some lenders are even able to offer 40 year and higher fixed rate mortgages.

Unfortunately, one of the factors that is looked at when refinancing a home is the amount of credit card debt you may currently have. Consequently, if that amount of debt can be paid off over a short period of time, just by making a few sacrifices, refinancing may not be for you. Your best bet might be to talk to a mortgage professional first, before making any quick decisions (and remember to shop around your rate to different lenders seeing if they may be able to offer a better deal).

Other programs that you might want to look into are Home Equity Lines of Credit and Home Equity Loans. Please click here for more information on these types of loans.

Once you do refinance, be sure not start running up that credit card debt again because you may not be able to refinance again for a very long time. Always remember that credit card debt can be a serious problem. In speaking with individuals that grew up during the depression, they are often amazed on how the country has changed since that time. Some of them find no use for credit cards at all, only viewing them as a quick fix that leads to problems down the road.

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