With the new credit card minimum payments set to go up this year, you may want to consider consolidating them with a home equity line of credit or cash out refinance.After you pay the balance of your high interest credit cards off do not close the accounts out, leave them open. Closing accounts that have been open for a long period of time can negatively affect your credit score. A good alternative to closing accounts out is lowering the maximum credit limits of the credit card accounts you paid off.
Other large payments can be paid off as well. It does not have to be credit cards. You could pay off installment loans that you may have outstanding as well.
A good measurement for considering a refinance or second mortgage to pay off credit cards would be the time in which you would be able to pay off the credit debt. Because of "compounding interest" if your credit debt would remain unpaid after three years of payments, consolidating your debt would most likely be beneficial.
Asides from the tax benefits of consolidating your credit cards into a refinance, the added benefit is you would then make only one payment instead of cutting multiple payments to different card companies each month.
Consolidating all or many of your debts with a refinance or second mortgage may save you considerable amounts of money each month. You can put the money you save into a savings account or towards extra principal payments to your mortgage. This will maximize the benefits to you and your financial picture.
Make sure to check with a tax professional as a HELOC is not always tax deductible.
Many people fall into a trap of paying off their credit card debt by refinancing, only to go out and charge up the credit cards again. Be careful not to let this happen to you. You will not only have the payments you were trying to eliminate, but also a higher mortgage payment on top as well.
As oppose to credit card interest payments, interests paid on Home Equity Loan and Home Equity Line of Credit (HELOC) may be tax deductable. As always, consult a tax accountant or the IRS website before taking such deductions.
Make an effort to change the spending habits that led to the high credit card debt. Converting unsecured credit card debt into a debt secured by your home can be very risky if not done properly. Too many trips to the home equity ATM could leave you penniless and homeless.
