Refinancing to Pay Off Credit Cards

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Homeowners have seen massive increases in the values ​​of their homes. At the same time, they tend to have significant personal debt. Ah, I think we have a match.

You hear it on the radio everyday or perhaps see a television advertisement. Why should you keep paying those high interest rates on your credit cards? If you own a home, you can simply refinance and pay off the credit card debt. After all, who would not want to exchange a 22 percent interest rate for 9 or 10 percent? It just makes sense ... or does it?

Refinancing to pay off credit card debt usually does make sense. There are, however, a couple of things you need to take into account before you start applying. If you do not, you could really come to regret it.

The first issue to consider is the mortgage interest tax deduction. To the surprise of many new homeowners, it is a capped tax deduction. You can write off interest on a refinance for the first $ 100,000. Anything above that is assumed to be consumer credit, and can not be written off. Now, I hope you do not have over $ 100,000 in credit card debt, but you should at least know there is an upper limit.

A second, and bigger issue, is what happens after you pay off those credit cards. Simply put, you still have them. They have no balances. In a word, we are talking about temptation. Using the equity in your home to pay off credit card debt only makes sense if you do not run up the credit cards again.

Statistics show Americans abuse credit cards. We crank up the charges if our credit limit allows us. Well, if you do this after you have used equity to pay them off, you are going to be right back where you started. Actually, you will not. You will be worse off! You will have a massive credit card debt balance and less equity in your home!

If you are going to pay off credit card balances, it has to be a one time shot. By one time, I mean you need to cut up those credit cards. If you have every gone in for credit counseling, you know this is one of the first things the do. They actually take your cards and cut them up! Without access to them, you will greatly reduce the temptation to buy that mega flat screen surround sound mixes martinis for you one the couch entertainment system. In short, it is a must.

Paying off credit card balances with your home equity makes sense in most cases. Just be careful that you do not run up the debt again.

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Source by Sergio Haros