Many of us enjoy living the good life without giving much thought to the future. It can be difficult meeting household expenses and raising a family. Fewer companies are offering retirement plans or pensions, and the cost of living keeps increasing. Education costs, credit cards, cars and their maintenance, and your home mortgage all cost plenty. Refinancing your mortgage can help you reduce or eliminate debt and allow you to start saving.
Refinancing to Pay High Interest Consumer Debt
The important thing to consider is how much debt you have, and how much interest you're paying. Credit cards and consumer loans can have rates in excess of 20%, while your mortgage rate is far lower. An added benefit of refinancing is that the interest you pay on your mortgage is probably tax deductible, but interest paid on most other types of debt is not deductible. By refinancing your mortgage, you can eliminate credit card debt at a much lower rate than if you continue to make payments each month.
Doing the Math, and Making a Plan
You've probably heard it's a good idea to pay yourself by saving before paying your bills. Typically, this is good advice unless you are carrying balances on credit cards. By paying off your credit card balances, you are effectively paying yourself the interest rate you are paying your creditors each month.
If you can't see getting out of debt anytime soon, it may be possible to refinance for enough to pay off your debts. Your mortgage payment may be higher, but it's far better to pay off the credit cards at a much lower rate. Any money you save by refinancing can be contributed toward your savings or retirement plan. It's a great idea to consult a financial advisor before refinancing. They can help you evaluate your situation, and offer advice about using your home equity and refinancing to clear up debts with high interest rates.
