For many people, the thought of being knee deep in credit card bills is a dreaded reality. Homeowners have worked for what they have and it’s hard to imagine that credit card debt can take away everything if you don’t know the reality of the situation regarding loans and credit card debt.
For those that own a home, they may consider refinancing their current mortgage for the value of the home; that equity in their home can then be used to pay off credit card debt. Prior to taking this step, you should do some research. If your current home loan has a low fixed interest rate; this could cost you in the long run. You may end up with a high interest rate for years to come. As well, there may be penalties or fees associated with closing one loan out for another. Finally, the fees and costs associated with refinancing your home will probably mount into the thousands; this will be added to your monthly payment if not paid in full. Therefore, you may end up paying interest on it, as well.
The worse scenario that can occur when refinancing your home to pay off credit card debt is actually losing the home you worked hard for all these years. You see credit card debt is unsecured; no one can remove you from your home, make you sell your car or any other asset to pay them off. However, if you refinance your home to pay this debt and fail to make the monthly payments; the bank could possibly take your home.
Another option that many people consider when in need of large sums of money to pay off credit card debt is similar; it’s a secured home equity loan. Home equity loans are usually for just the amount you wish to borrow; you will need to have at least that amount in equity in regards to your home’s worth. Home equity loans generally have terms less lengthy than refinance home loans, as well, the interest rates are reasonably lower. However, you must keep in mind that home equity loans are secured by your home; missing payments and being late on payments can cause problems for you and could possibly leave you homeless.
It’s important to consider the options prior to signing any documentation; as well, you really need to look at yourself and your spending habits. Is there any way possible, you could cut back and make the payments without taking out a loan? Are you living above your means? If not, what can you change about your circumstance to ensure this will never occur again? So many people do take out loans to pay their credit card debt and then within months or years have accrued more credit card debt.
People with large amounts of credit card debt should consider other options, as well. First and foremost, talk with your credit card companies. Most of the credit card companies have some type of hardship program for their clients. As an alternative, consider credit counseling services, they are often able to work out plans with your credit card companies eliminating high interest rates and fees, as well as, lowering your monthly payments.
