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Consolidate Credit Card Debt with a 2nd Mortgage Ė Lower Monthly Payments

March 2nd, 2006

Consolidate Credit Card Debt with a 2nd Mortgage Ė Lower Monthly Payments

Real Estate

You face the day when you have multiple credit card payments due each month and you either canít make the minimum payments or you are barely making the minimum payments.  This scenario may have just sneaked in life recently due to the double minimum payment rules that the government imposed on credit card companies.  Another law makes filing bankruptcy more difficult to be excused from the debt that you have created.

It is always better to have a plan of action financially before you get stuck in a corner.  Lenders like to extend credit when you donít really need it.  They are hoping in a way that you will use it and pay minimum payments until the very last payment.  This ensures the profit can be maximized.  They are in the business of making money.  They make money when you first use the cards and make more money when you pay interest and fees.


If you are lucky enough to own a home that has equity in it you may be able to get a 2nd home mortgage with less qualification that you may with a regular home loan.  It is possible that you have a really great fixed rate loan on the bulk of the house, but only need a little extra loan that you can pay off in a faster time frame.  You also want to get a break on your taxes whenever you can.  You probably will get a better rate on the 2nd mortgage than you have with your credit card.  Interest rates can go all the way up to 30%.  If you get a 2nd mortgage you can sometimes get the current interest rate or close to it.  This will make if easier for you to pay the amount down quicker without paying a fortune in interest to the credit card company.

Because it is a home loan they may only require the interest payment as the minimum payment.  This could help if you are really tight on cash at the time, but be aware that 2nd mortgages may be only for a 5 year or 10 year period.  You need to plan ahead on this one too, whether you can make the extra money soon as the can foreclose on your house when loan term expires.  You should consider retiring your credit cards at this time so that you donít end up in worse shape than you already are in.  You should also work on a budget and get ready to pay for everything with cash.


Come tax time the interest that you paid on a 2nd mortgage is tax deductible.  This usually is well worth it as it gives you a break on taxes.  The interests that you pay on credit cards that are used for personal use are not tax deductible.  Consult your tax of financial advisor if this strategy will help you as each personís taxes vary.

Bankruptcy laws have changed so that your wages can be garnished for repayment of debt.  The reality is that you donít want to go bankrupt any time soon.  It wrecks your credit for 10 years and you really can be broke when you are starting over again.  By addressing your financial problems sooner than later you could really turn it around.  Bankruptcy maybe wouldnít be the easy way out that it might have been in the past.


Even if you donít have debt today, a 2nd mortgage can be a better line of credit to have on hand just in case of extreme emergencies.  If you lost your job for instance, you went through your savings and you still didnít have work, if you had a 2nd mortgage before all of this happened without any balances on it, you could tap into that financial reserve while your situation improves.  If you try to get a 2nd after you are out of a job, you might find that they will turn you down.

With planning and budgeting it is possible to turn around the debt that you may have.  First step is to figure out what your debt you have and how much income you have.  You then figure out what you spend your money on every month and make a budget that you stick to.  You look for ways to save money, whether it is on interest on credit cards, to lower insurance rates, to eating at home.  Consolidating your credit card debt with a second mortgage could be beneficial in many ways.

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By Nicole Wilson
Best Syndication Staff Writer


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