Debt Consolidation Program The Best Option?

Choosing to sign up for a debt consolidation program is certainly one option to get out of credit card debt. But is this the best and only option that you may have? The solutions that are out there seem to stem from whether you are a home owner or not. We will review the options for both.

Options To Get Out Of Debt As A Home Owner
The first option to look at if you are a home owner is doing a cash out refinance. Paying off credit card debt with your home’s equity will in most cases give you a lower rate and a much lower payment. Credit cards work off of simple interest calculations and mortgages are amortized usually over a 30 year period. A credit card balance of $30,000 may give you a payment of over $1200. However, if you were able to move that balance into your mortgage, your new payment would be just under $200 when calculated on an amortized basis.

Refinancing Your Mortgage To Payoff Debt – Advantages

Refinancing your home mortgage to payoff credit card debt can have huge advantages for you. The first advantage is that you can probably now write off the interest you were paying on the credit cards in the form of the mortgage interest tax write off allowed by the IRS. Second, with a lower payment comes stress relief. Can you imagine having an extra few hundred dollars in your bank account at the end of the month?

Potential Disadvantages Of Refinancing To Pay Down Debt

I am only an advocate of transferring unsecured debt to secured debt – like a mortgage or auto loan – if you have the discipline to not go out and repeat the past. Wiping your credit cards clean is great but if you act on the temptation to use them again, you may end up in worse shape. You may end of with no equity and no emergency backup plan.

Refinancing your mortgage will have closing costs which could cost you a couple of thousand dollars. You will also be starting over with a new thirty year term.

The Home Equity Loan Option To Get Out Of Debt

The other option with your home would be to add a home equity loan or a second mortgage. Typically a home equity loan will have no costs associated with getting it started. It also gives you flexibility in getting access to the cash in your home. But with most home equity loans being interest only you will need to make extra payments above the minimum payment to pay off your debt.

Similar to a straight cash-out refinance of your first mortgage as I mentioned in the previous section, the mortgage interest is a possible tax write off on your tax returns. For both tax write off possibilities you will need to consult with a tax adviser to see if and how you can write off your mortgage interest.

There is one drawback to consider if you roll your credit card debt into your mortgage. What happens if you get into trouble and cannot make the extra payment? In the case of it being your mortgage, you can lose your home to a foreclosure. But if it is with your credit cards, the collectors cannot take your home, nor are they likely to take the stuff back that you bought. So be careful of moving unsecured debt to a new mortgage.

Options If You Do Not Own A Home To Get Out Of Debt
Unfortunately, the opportunities for getting out of debt by leveraging your home’s equity just aren’t there for you if you do not own a home. However, there are still some viable options that might work if you do not want to go into a debt consolidation program.

Get A Lower Interest Rate On Your Car Loan

One way to pay off debt is to rearrange where you are paying your debt. Often, car loans can be refinanced to lower the payment due on the loan. Most people do not think about lowering their monthly bill payments with a refinance of the car loan.

You can go online and search car loan companies to see if you can get a better interest rate. Getting a better rate on your car loan can free up $100 or more. Give yourself a raise without working any harder. I would start my search for lower car rates on Google and see what you come up with.

Credit Card Companies Lower Their Interest Rates – Just Ask

Another way to lower your monthly bill payments is to get your credit card interest rates lowered. Amazing as it sounds, this may be one of the easiest things you can do to make headway at getting out of debt. Just pick up the phone and see if you can negotiate better rates with your credit card companies.

The key to remember is: that they do not want to loose you as a customer. You may have to play hard ball with them and threaten that you will move to a company that is offering you a lower interest rate. If you have been with them for a longtime they do not want to loose you.

Switch to Lower Interest Credit Cards

If your credit card company will not lower your interest rate switch to another credit card with a lower interest rate. Make sure that you keep the date handy for the introductory period if you do get a 0% balance transfer. If you go over this time period, your payments will go up.

Also, if you do payoff an older credit card do not close your account. Closing this account could hurt your credit scores considerably.
For more information about credit scores see’s article on tips for raising your credit scores: things your creditors do not want you to know.