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Home Refinancing – Part 2 Should I Refinance to Consolidate My Debt?

Another reason one may wish to refinance their mortgage is to consolidate debt.  If you have $10,000 of credit card debt that you’re paying, for example, 20% interest on, then that means that you’re paying $167 in interest every month, before you even touch the principal.  Ouch!   But if you roll that debt into your home mortgage that is being charged at, say, 5% interest, that $167 of monthly interest becomes $42.

Wow, that sounds great!  So what’s the drawback?  Well, the $10,000 of credit card debt in the first place.  How did that happen?  If it was for a one-time expense like a medical bill, no problem. 

But if that debt was racked up by a big screen TV or a 2 week vacation, you’ve got a leak in that wallet.  In which case, refinancing isn’t going to help.  The most common scenario in this case is that $167 payment goes down to $42, exactly as planned.  But then another vacation creeps into the mix before the debt is paid down.  A new video game system is released, and new games to go with it.  Aw!  Look at that puppy in the pet shop!  

Next thing you know, that $10,000 credit card debt has reared its ugly head again, and now you have an extra $10,000 of mortgage debt to boot!  So instead of $167 down to $42 a month, you’ve gone from $167 to $209!

The solution to this is to cut up that credit card and not apply for another one.  Anything shows up in the mail that feels like there’s another card inside gets thrown out without being opened.  But even that is only fixing the symptom and not the underlying problem.  We would highly recommend getting your financial house in order (become accustomed to spending less than you earn) before refinancing your home to consolidate debt.


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