The Hidden Benefit of Consolidating Debt Into a Mortgage

By Richard Barrington Columnist

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Consolidating debt into a home loan can help manage existing debt and control future spending. Consider the pros and cons of using a home loan to refinance credit card debt by examining what you currently owe.

Stories about people who are in over their heads with debt almost invariably involve multiple credit cards. To simply refinance one credit card with a new one may be like replacing one addiction with another. Using a home loan instead can be an opportunity to break the cycle.

Mortgage Pros and Cons Revisited

Using a home equity mortgage to refinance existing debt has clear advantages and disadvantages. The primary advantage is that mortgage rates are generally lower than credit card rates.

The primary disadvantage is that a mortgage is guaranteed by your home, so rolling your debt burden into a mortgage may be upping the risk ante. However, personal bankruptcy is no picnic either, so a mortgage can be an intelligent solution to refinance existing debt.

Home Loans Are Less Impulsive Transactions

With regard to future debt, a home loan has the advantage of discouraging future borrowing more than a credit card does. A home loan requires an application process, approval, and closing costs. You cannot simply whip it out of your pocket and increase your debt burden on an impulse.

If you refinance your debt with a home loan, it will give you an opportunity to try life without credit cards -- or at least without carrying them wherever you go. This may sound extreme, but if you are having debt problems, you have to think long and hard about what having those cards at hand has done so far.

The San Diego Union-Tribune

About the Author
Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.

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