The article concerns the following question – Cash-Out Refinancing: A good way to get out of debt? Looking for ways to reduce your debt load? Want to get out from under that credit card debt and other outstanding bills? Cash-out refinancing may be the answer to your problems. Since many people are wondering whether or not they should remortgage their house in favor of paying off credit card debt, we decided to explore the question “is cash-out refinancing a good way to get out debt?”.
Admittedly, the most obvious reason to reduce or pay off other debt is the difference in interest rates between the “other” debt and mortgage debt. In most instances, refinancing through a mortgage is going to be cheaper than other types of loan consolidation. This makes cash-out financing quite attractive when trying to get out of debt.
Another reason for accessing equity in your home to get out of debt is to reduce monthly payments. For example, with all your debt combined, you might make payments totaling $3,000 per month. If you combine all of that, your new one-lump-sum payment might only be $2,000 leaving a thousand dollars for other expenses such as food, utilities, and extra-circular activities for the children.
For some people, this will indeed help them to move forward out of an unbearable situation, but for others, this type of home loan refinance is not really a good idea. By taking out the extra mortgage, you have increased your mortgage. Now it will take you longer to own your home.
Further, some individuals request that their mortgage terms be extended in order to make lower payments. This is probably not the best way to get out of debt. Unless you come into a large sum of money to reduce the mortgage, your house will be tied up forever. The most advantageous way to access cash-out refinancing while at the same time get out of debt is to make the same payments on the mortgage.
That means if you were paying $3,000 for your total debt and you remortgage your house, you should still pay $3,000 if your income permits. In this fashion, you are truly making a dent in your debt and you have swapped out high interest payments for lower refinance rates. You continue to build equity in your home and as long as you do not incur any more debt, you are basically debt-free.
Indeed, the most important word of caution when using cash-out refinancing to get out of debt is that if you must use your charge cards, you must be able to pay them off each month, avoiding more debt. Likewise, other bills should be paid on time to avoid high interest costs. By following a structured budget, it will be worthwhile to pay off debt with a new mortgage called cash-out refinancing.