Consolidating Debt with Help from your House
Credit cards, student debt, car payments, medical bills, oh my!
Even when financial times are good, excessive debt can be overwhelming and seem insurmountable. Especially when some monthly payments are simply swallowed up by a high interest rate, making any progress excruciatingly slow.
If you own your home, then you may find yourself with substantial equity in this strong housing market – and a potential solution to the debt headaches: cash-out refinancing. Currently low interest rates add to the appeal of refinancing, particularly if your original mortgage rates are higher.
If you’re able to take advantage of the equity in your home that would otherwise go unused, potential benefits include:
Decrease your monthly mortgage, freeing up money to pay off other debts
Pay less in interest, enabling you to pay off mortgage quicker
Pay less in interest than credit cards and other loans with higher rates
Change a current variable-rate mortgage to a fixed-term loan so budgeting is easier
While the temptation to wipe out all of your monthly payments is strong, it’s a good idea to consider the value of each debt before consolidating.
The average interest rate on credit cards is 15.32% (as of 2018) and there are some that are much higher, making it impossible to clear balances owed with minimum payments. With current mortgage rates at a two-year low (below 4%) there’s an obvious advantage to “exchanging” loans, as long as you avoid repeating the cycle once the cards are paid down.
When healthcare providers pursue payment they can charge as much as 12% interest per annum. Again, the difference in rates can make this decision easier if you can’t get out from under the debt of unforeseen medical events.
There has been a lot in the news lately about the debt burden so many in this country bear for years after they actually leave higher education. Consolidating these loans can relieve a lot of this stress.
Paying off your auto loans early can free up monthly savings, which can be redirected towards paying off your mortgage faster.
Our experts at EnTrust Funding (ETF) understand that your home is an asset and your financial decisions are based on objectives for your future. Call for a complimentary consultation to make sure that cash-out refinancing for debt consolidation is in your best interest.