Should I refinance my house to consolidate debts?

Guest

My credit score is poor and a lot of credit cards are pending. Should I refinance my home to consolidate the debts? Need advice. Thanks.

Guest

Hi,

I don't think it's wise to put your home at risk by consolidating your unsecured debts in a mortgage loan. Think once again and check if you are sure you can afford the payments and don't lose your home in the process.

Samantha · Posted: Thu Jul 13, 2006 1:22 pm Post subject:

Hi,

It is quite possible to get attracted in consolidating your unsecured debts by including all of them in a mortgage loan as it can give you relief from those high interest rates that you face with these unsecured loans.

But you must analyze the disadvantages too before taking any decision. By including your credit cards and other unsecured debts in a mortgage loan you are converting the unsecured debts into a secured mortgage debt. You can lose your home once you fail to meet the payments.

Initially it may seem that you have to make much lower monthly payments but in the long run you will find that you need to make much higher interest rate expenses by taking 30 years to pay down your credit cards.

With poor credit it means higher interest rate on the new mortgage loan and thus you are paying even more in terms of higher total interest expense.

Home equity loan can be a better option compared to refinancing where the closing costs are much lower and here you are not increasing your term for the loan and not increasing your rate on the current mortgage.

But this home equity loan also should be taken care as it can put your home at a risk too if you fail with the payments. But home equity loan can certainly be a better option here compared to refinancing.

God bless you.

For MortgageFit,
Samantha

Guest

i have a chance to refinance. I would rather not put credit cards
in my house loan, but pay them off one by one. And pay my current
loans off as loans not as some giant new loan

larry · Joined: 27 Jun 2007 Posts: 3328 474.49 Dollars($)

Hi Dave,

I agree with you that it is always better not to put the funds of credit cards for the home loan.

wildstorm_films · Joined: 22 Aug 2007 Posts: 131 8.70 Dollars($)

I all I can say is make sure you can afford to do that. If you can't don't even go through with it. It is better to try and payoff what you can.

mtgfixit · Joined: 13 Apr 2009 Posts: 73 27.91 Dollars($)

Making the decision to tackle your debt and put yourself on the path towards financial freedom is no small task. Before making any decisions you should know what your options are.

Debt Settlement - is when a third-party agent works for you to negotiate with your creditors and reduce the amount of debt that you owe. Debt settlement will put you on an aggressive payment plan that will allow you to tackle your debt in 2-5 years rather than taking more than 20 years to pay off growing balances and astronomically high interest rates that you are being charged.

Bankruptcy - might be the right solution for some individuals but can be both a financially and emotionally draining experience. A bankruptcy will remain on your credit for up to 10 years and is typically considered the last option. A bankruptcy attorney will typically require large up-front fees regardless of the outcome of bankruptcy court.

Chapter 7 - is referred to as “liquidation.” In liquidation, the debtor turns all of their assets over to the trustee who then sells everything and distributes the proceeds to creditors. This can be done once every 7 years.

Chapter 13 - is when the debtor presents a payment plan to the court which is reviewed by the court and your creditors. You must pay a court determined amount based on your income and the plan lasts up to 5 years. The Debtor must remain under court supervision for the life of the plan and is unable to take on new debt or sell assets without permission of the bankruptcy court.

Credit Counseling - is a program in which counselors reorganize your payment plans and give you a longer amortization period for your debt. With credit counseling you will pay back all of your debt plus interest and fees. With credit counseling, your agent is also working on behalf of the creditors and receiving payments from them, which can create a conflict of interest.

Debt Consolidation - involves taking out one loan to pay off multiple existing debts. This is done to achieve one low interest rate across all of your debts. It all sounds great, but finding a loan in this environment can be very difficult, not to mention all of the up-front fees that are built into these loans. In the past, it was common to tap the equity in your home, but given the recent mortgage crisis, this has become close to impossible in most circumstances.

Minimum Monthly Payments - making minimum monthly payments to your creditors is like being caught in the hamster wheel constantly running, but not getting anywhere. It will cost you thousands of dollars and can take up to 40 years to pay back the debt you owe. If you fall behind are unable to make your minimum payment one month or make the payment on time, your credit card company has the option to declare your account in default and raise your interest rate to over 20% in most cases.

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