Homeowners have several advantages for consolidating credit cards with a debt consolidation mortgage or a home equity loan.  Borrowers have the ability to take out a second mortgage that enables them to refinance debt efficiently in a lower monthly payment that is tax deductible. Take advantage of simple interest, lower rates and tax write-offs that all translate to significant savings.

1. Interest Rates on Your Credit Cards Are Costing You Money Every Month-

The primary reason why most homeowners consider paying off credit card debt by consolidating all of their outstanding credit debt into a second mortgage is because the interest rates on their existing credit card are simply too high. Stop throwing money away every month and take advantage of lower payment second mortgages. The bottom line is that secured credit card debt consolidation reduces compounding interest and that will save you money each month.

As you probably already know, banks issuing credit cards don’t offer the same interest rate. You can get a lowered interest rate card, but it will probably be for an introductory term of 6 months or a year. The other area of concern is that the banks are allowed to change the terms at any time. If you were to transfer your credit card with fixed rate mortgage refinancing on a 15 year term, you would have specific, set terms that can’t change for the duration of the second mortgage term. Another important factor is that each payment you make with a second mortgage goes towards paying off interest and principal.

One of the more significant financial benefits is that when you consolidate your existing credit card debt into a second mortgage that is offering a lower interest rate that is considered simple interest. Of course, this will convert your compounding interest into significant savings that you will realize every month. (ie: if you consolidate 7 credit cards that are costing you $757 a month, and your fixed rate second mortgage payment is $390 a month, you would save $367 a month by transferring the credit card debt into the second mortgage offering simple interest)

2. No Annual Fees with Fixed Rate Mortgage Refinance –

A common trend for bank’s issuing credit cards and home equity lines of credit lately has been to charge borrowers an annual fee for using the credit card or line of credit. In some cases these annual fee can be costly. (ie: if you have 6 cards with annual fees of $50 a year, you would save an extra $300 a year by transferring the 6 credit cards into the second mortgage that has No Annual Fee)

3. Turn Your Bad Credit Scores into Good Credit Scores-

Many homeowners have circumstances arise that because their credit scores to suffer. If you own a home and have some equity in your home, chance are you can save a pretty penny, by getting a second mortgage to wipe your debt clean. Even if your existing credit card have late payments, it’s most likely still going to benefit you to consolidate your debt into a refinance mortgage. Recently the underwriting guidelines for bad credit mortgage programs have become stricter because of an increase in loan defaults and delinquencies. . If you have had a past bankruptcy, foreclosure, repossession, or have been late on your mortgage payments, you still may qualify for a fixed rate second mortgage. If your consumer debt is starting to concern you, and you are having trouble sleeping, it’s time to consider your second mortgage options. If you are no longer able to make the monthly minimum payments in a timely manner, it’s time to consider your options for a second mortgage that can lower your payments significantly and help your credit score increase. Eliminating the credit cards when you transfer the credit card debt to the second mortgage will help your credit score increase, because it is eliminating high revolving debt that is presently hindering your credit scores. In addition, making your mortgage payment on time every month will help your credit scores go up because the timely mortgage payments weigh heavy with fico scores.

4. Credit Card Interest Usually Isn’t Tax Deductible-     

Like your existing 1st loan, refinance mortgages are tax deductible in most cases. Many first time homebuyers run up their credit cards after buying their 1st home, because they need furniture, and sometimes need to make some immediate home improvements. If you have some credit card debt and you pay taxes out of each paycheck, like most Americans, it might be time to consolidate your credit cards and find some additional cash come back to you when you do your taxes.

We get a lot of inquiries from borrowers about the best ways to eliminate credit card debt.  They want to know whether they should enter a debt settlement agreement or whether they a debt consolidation mortgage would be a better solution.  First of all it completely depends on your situation.  If you have a lot of equity, then eliminating the compounding interest of credit card debt in a fixed second mortgage or debt consolidation loan is usually a wise move financially.  However if you do not have equity in your home, no lender will approve you for an equity loan or even a refinance loan that enable you to consolidate credit card debt.  Gone are the days when lenders would approve 125% loans for debt refinancing.  The only 125% mortgage programs left are the Home Affordable Refinance that only allow home refinancing with specific 1st mortgage liens that were backed by Fannie Mae or Freddie Mac. 

Regarding credit card debt settlement relief, you have to be careful and verify the success of the debt relief company that you are considering.  Debt settlement can be a wise financial move, especially if you do not own a home.  However debt settlement can have negative implications for your credit, just like being late on your credit card bills can be or not making your mortgage payment on time.  

The fact is that we are living in very uncertain financial times with low interest rates, a depressed housing market and an unpredictable stock market. With that being said it is important to remember that your decisions financially can have serious consequences on your wealth in the future.  Debt settlement, consolidation loans and second mortgages should all be carefully considered be before making a commitment.