Refinancing Mortgage: Is Debt Consolidation Right for You?
Ever feel like the weight of being a homeowner is too heavy with all the various financial responsibilities? According to the 2015 Report on the Economic Well-Being of U.S. Households, over one-third of respondents reported experiencing some level of financial stress; so you are not alone. One popular solution, if you have not heard of it (to relieve some of the financial stress), is refinancing your mortgage into a debt consolidation loan.
What is debt consolidation?
Debt consolidation is the act of refinancing all of your debt into one collective loan so you only pay one loan each month. People who choose to consolidate their debt are usually seeking for a simplified way of managing and organizing their payments in order to keep track of their debt.
Aside from making things easier, what’s the real benefit of refinancing your mortgage into a debt consolidation loan? The ultimate goal when consolidating debt is to pay the lowest possible interest rate across the board. Refinancing your mortgage into a debt consolidation loan doesn’t change the amount of debt that you owe, but it can save you money in the long run with a lower interest rate, hopefully resulting in more disposable income each month.
Know your options.
There are multiple ways to go about getting a debt consolidation loan. One option is to use a debt consolidation company that allows you to pay off all your debts by taking out a single loan from them– meaning you will no longer pay money to your previous creditors. Once you decide to consolidate your debt with such a company, you can’t reverse it, so it’s important the interest rates are low.
A second way to consolidate your debt is through a Home Equity Loan, which allows you to borrow money based on the value of your home. A Home Equity Loan often offers a low interest rate, but holds your home as collateral for all of your debt which can be a bit of a risk. Lastly, you can use a balance transfer to consolidate your debt. This can be a great option as it often boasts little to no interest as long as you pay the monthly payments on time and in full every month. The downside is if you fail to do so even once, the interest rate will spike significantly, resulting in you spending way more than you were before you consolidated your debt in the first place.
Be sure to read the terms carefully.
As is with any financial responsibility, there can be hidden fees, cryptic descriptions and other fine print that can end up biting you in the long run. While the main perk of consolidating debt is the low interest rate, it can often get cancelled out by extra fees and other payment details. To avoid complications, be sure to carefully read the terms of your debt consolidation and ask any questions you may have.
Have a good understanding about how you spend money.
If you’re used to whipping out the plastic when it comes to paying for things, you may want to rethink your spending habits. When you refinance your debt into one consolidated monthly payment, it would be helpful to focus on paying that off and avoid acquiring more debt as much as you can. It’s wise to keep a credit card available, but for emergency use only. Try to get in the habit of keeping track of everything you spend, and only spending within your means. If it seems overwhelming and you find yourself loosing focus, just think about how great it will feel once you have your debt completely paid off.
Would you ever consider refinancing your mortgage into a debt consolidation loan? Tell us in the comments below. Check out more tips on ways to manage your mortgage.