Debt Consolidation with Cash-Out Refinancing

By Karen Lawson
Loan Page Columnist

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When the media mentions the national debt, does it remind you of your own situation? On the average, Americans are carrying $8400 in credit card debt. This amount does not include car payments or other installment loans.


Going Up: The Cost of Consumer Debt

High interest rates, additional fees and charges, and increased minimum payments contribute to the difficulty of paying off high credit card balances. If you are a homeowner, a cash-out refinance of your mortgage may be the tool you need to fix your finances!

Fixing Your Finances and Remodeling Your Budget

Refinancing your mortgage can provide a low cost method of debt consolidation. Cash-out refinancing can be used for many reasons, but if used wisely, it's a great way to pay off consumer debt at much lower interest rates.

The 1, 2, 3's of Qualifying for a Cash-out Refinance

A cash-out refinance is a mortgage loan that will replace your current mortgage, and supply additional cash to pay off consumer debt. Qualifying for a refinance of your mortgage largely depends on three factors:
  • » The equity you have in your home Equity is the value of your home less the amount of your mortgage.
  • » The amount of your income compared to the amount of debt you owe.
  • » Loan-to-value ratio, or LTV. This is the amount of your mortgage loan divided by the value of your home.

Mortgage lenders use these factors in determining how much you can afford to borrow. If you have little equity and a high debt to income ratio, you may be charged a higher interest rate, or additional fees to refinance your mortgage. It's important to shop around for cash-out refinancing options. The relief of paying off high interest consumer debt with a much lower rate cash-out refinance may be well worth it.

The Motley Fool

About the Author
Karen Lawson is a freelance writer with fifteen years of experience in mortgage lending. She earned an MA degree in English from the University of Nevada, Reno.

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