Advantages in Consolidating Credit Card Debt into a
February 7th 2006
Equity in your
There are some
things you need to consider before consolidating credit card debt
into a home loan. Some home owners may not want to take unsecured
credit card debt and convert them into a secured loan using the
house as collateral. But now that the bankruptcy laws have changed,
this option may get more serious consideration.
Last year minimum
credit card payments doubled as well. Some people may have been
forced to pay emergency medical bills off using their credit cards.
At the time they did that their income may have been enough to make
those minimum payments. Other people that started their own
business may be feeling the crunch as well. They may have had just
enough to pay the minimum.
The Feds just
recently raised interest rates. Hopefully we never go back to
double digit inflation and extremely high interest rates, but this
may be another consideration in refinancing. If you plan on living
in your home for more than five years, refinancing may be worth
it. Talk to your financial planner or accountant first.
If your credit
card debt is less than $10,000 you are probably better off paying
your cards off with installments. Because there is a cost
associated with home loans, you should not refinance your first
mortgage to pay these bills; unless you plan on converting your
Adjustable Rate Mortgage (ARM) into a fixed rate mortgage anyway.
When your credit
card bills exceed $10,000 you may want to crunch some numbers. If
interest rates rise, so will your payments. It may make sense to
lock these charges into a fixed second or possibly refinance your
What is your
first home loan? Is it an adjustable rate mortgage (ARM)? If so,
and you have been paying on it for a few years; it might be the time
to lock it in. Also, credit card interest is not deductible on your
taxes, but mortgage interest is. This may change the equation for
be a great way to lower your monthly bills. It may also give you
security in the future if interest rates rise. Consider a fixed
home loan while interest rates are relatively low.
Make sure your
current loan does not have major pre-payment penalties. If they do,
what will this cost you if you get out early? This should be
another consideration. Watch for these prepayment penalties on your
next loan as well. In a few years you may be in a position to make
double-payments and you do not want to be penalized for doing so.
Loan brokers may
take a commission, but they may be able to save you money as well.
Loan brokers will help you shop around for a loan while not putting
new inquiries on your credit every time you apply for a loan. Once
you get inquiries on your credit, future potential lenders will
wonder why previous lending institutions did not give you the loan.
In many cases the more inquiries the hard it is to get a loan.
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