Credit Card Debt and Refinancing

Mortgage rates averaged 4.96% for a 30-year fixed-rate loan and 4.33% for 15 years at the end of last week, according to Freddie Mac data. Refinancing is an attractive option right now for homeowners looking to reduce their monthly mortgage payments and lower interest. But should you use a refinance to pay off credit card debt?

Debt Consolidation

Some people with a lot of equity in their home choose to refinance to consolidate debt. This could make sense if you are struggling with high-interest credit cards that are zapping your income and keeping you from saving. 

Paying Closing Costs

Keep in mind, however, that when you refinance there are closing costs that can run you several thousand dollars. Even if you finance the closing costs with the rest of the principal, you end up paying interest on that amount over time.

Falling Home Equity

Another reason using money from a refinance to pay off credit card debt can backfire is if your home equity falls. Housing values all over the U.S. have dropped during the past few years. If you still have some equity in your property, you may want to hold onto it until home prices in your area improve.

Debt Reduction Techniques

Refinancing may not be the best option to pay off credit cards and other debt. Consider negotiating for lower interest rates with creditors to lower monthly payments. Pay more than the minimum monthly payment whenever you can, even if it’s only a few dollars extra. Finally, if you are at least two months behind on debt payments, consider negotiating a debt settlement with your creditors.

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