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Advantages in Consolidating Credit Card Debt into a Home Loan

February 7th 2006

Advantages in Consolidating Credit Card Debt into a Home Loan

Equity in your Home

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 first mortgage. 

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 you. 

Refinancing may 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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Dan Wilson
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