Debt Consolidation Refinancing: Which Bills to Pay?

By Karen Lawson
LoanPage.com Columnist

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It's a sign of the times. Americans are carrying ever larger balances on credit cards and consumer loans. Interest rates, late fees and other charges keep going up, too. If you're a homeowner, and need help paying off consumer debt, you may be able to refinance your home loan to pay off all or part of your debts. Here are some ideas for deciding how to prioritize paying your bills by refinancing your mortgage.

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Credit cards are convenient, and sometimes we pay the price for their convenience. If you carry balances on your credit cards, you're probably paying interest at a much higher rate than your home mortgage interest rate. If you have had problems paying your bills on time, you can add late charges and even higher interest rates to the cost of using consumer credit. If you're refinancing your mortgage to pay off your consumer debt, you'll want to make a list of all of your credit cards and consumer loans. List the balances and interest rates. If you're not able to refinance for enough to pay off all of your credit card and loan balances, you'll want to pay off balances with highest interest rates first. Remember that interest paid on a mortgage for your principal residence is generally tax deductible. Interest you pay on credit cards, car loans and other consumer financing is not tax deductible.

What about Student Loans?

If you're carrying student loans with interest rates higher than your mortgage rate, you may be inclined to pay them off by refinancing, too. However, it's a good idea to review your other debts first. If you have federally funded student loans, interest paid on these loans may be tax deductible. If you aren't sure which bills to pay through mortgage refinancing, a financial advisor can help you establish a debt consolidation plan that works for you.

About the Author
Karen Lawson is a freelance writer who has more than fifteen years of experience in mortgage banking. She holds an MA degree in English from the University of Nevada, Reno.

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