Should You Refinance Your Mortgage Loan to Pay off Credit Card Debt?

Posted by  on Sep 04, 2009

If you're like many Americans, you may be paying on a mortgage loan and juggling a lot of credit card debt. Homeowners with credit card debt used an average of $14,344 in home equity to pay down those cards over the past five years, according to a study by Demos, a national research and policy center. Here are some pros and cons to refinancing a mortgage loan to pay off credit cards.

Refinance to Get Creditors off Your Back

The most obvious reason you may want to refinance to wipe out all credit card debt is to consolidate everything into one payment. This can:

  • Allow you to draw on some of your home equity to pay off credit cards with a lump sum
  • Put an end to constant phone calls from bill collectors
  • Improve your emotional well-being since being harassed by creditors can be very stressful
  • Eliminate the interest rate changes and fees that credit card companies throw on whenever they please

Keep More of Your Income

Refinancing can allow you to keep more of your take-home pay. The average amount Americans owe on credit cards is $9,827, according to Demos. Compare mortgage quotes to get the best loan deal if you want to lower your overall monthly payments for debt. You'll also be able to deduct the mortgage interest paid on your home mortgage. If you're able to keep more of your pay that should help you beef up savings and grow your wealth faster over the long term.

Refinancing Involves Closing Costs

There are some drawbacks to doing a mortgage refinance to pay off credit cards. They include:

  • Mortgage lenders usually require borrowers to pay closing costs to refinance. If you choose a cash-out refinance, closing costs could run you thousands of dollars--but do it if you would recoup your costs with a lower rate on your current mortgage.
  • Home equity loans or lines of credit often come with low or no costs. However, the rate is higher. Use a mortgage refinance or debt consolidation calculation calculator to decide which option is best.
  • When shopping for mortgage quotes ask mortgage brokers and lenders to provide you with as accurate an estimate of closing costs as they can before you apply for a loan. This disclosure is called a Good Faith Estimate.

Lower Home Values Cut into Home Equity

The U.S. is in one of the worst housing slumps in history. Home values in some places have slid so far that many homeowners owe their mortgage lenders more than their properties are worth. If you've managed to hang onto some of your equity, it still may not be as much as you might get in a few years. It's anyone's guess what will happen with home values going forward, but if there's a risk that the value of your home could continue to decline you could end up underwater on your refinanced mortgage loan.

Alternatives to Refinancing

In the current economy some homeowners are finding it tough to qualify for refinancing. If you're in that boat, there are some alternatives to doing a mortgage refinance to pay off credit cards. You may be able to qualify for a smaller home equity loan or home equity line of credit (HELOC). Doing so will require you to use your house as collateral just as it would with a mortgage loan. So if you are unable to pay back the loan you could lose your home.

Also, if you're already behind on credit card payments, you may be able to negotiate a debt settlement with your lenders. As the economy has worsened some credit card companies have become more open to accepting a lesser amount if borrowers pay it in a lump sum. And finally, if you need help learning to manage your money better, it may be time to find a debt counselor.


  • A mortgage refinance can allow you to consolidate credit card debt, but there are pros and cons to doing this.
  • Refinancing can get bill collectors off your back and decrease your stress over money.
  • A home refinance could allow you to keep more of your take home pay each month.
  • Refinancing a mortgage loan usually involves closing costs that can add up to thousands of dollars.
  • Declining home values may cut into the amount of home equity you'll be able to tap in a refinance.
  • It may make more sense to use a home equity loan, debt settlement, or the help of a debt counselor to pay off credit cards.


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