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How can I use my mortgage to consolidate debt?
Many people find themselves in a bad place financially. They may be covered up in debt, and making lots of payments to many different creditors each month that don't seem to be making any kind of a dent on their actual debt. Luckily, there are many ways to get out from under your debt.
If you are a homeowner, you certainly can use your mortgage to get you out of that financial bind.
To put it in simpler terms, if you have paid your mortgage down for a few years, you can ask your bank to refinance your mortgage. This creates a brand new loan for your home. You can then ask for the amount of money that the property is worth and use the extra left over money after the original mortgage is paid off to pay off your other debts.
This not only reduces the amount of creditors you have to pay each month, but mortgages generally have lower interest rates, so you can escape those sky high interest rates you may have been paying on car loans and credit cards. For example, if your original mortgage was $100,000, and you have paid it down to $75,000, a refinancing loan would allow you to use that extra $25,000 to pay off your other debts. You are still committing yourself to a $100,000 mortgage, but that lower interest rate could significantly reduce the amount you were paying out each month.
One thing to remember with mortgage refinancing is to weigh the pros and cons wisely. This should not be used as a way to get "free" cash when you need it. This is a way to responsibly get yourself out of debt and have a positive effect on your credit score. Mortgage refinancing does not leave you free and clear to start getting new credit cards or loans.
You must take great care to avoid falling back into the habits that necessitated a refinance in the first place.
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