Credit Card Debt, The Latest Home Addition

ROCKVILLE, MD. –– With mortgage interest rates historically low, more and more people are looking to their home as a way to consolidate and pay off their debts. But while trading high interest rate credit card debt for a low interest rate loan backed by a house can make mathematical and financial sense, there are significant risks involved.

“People often don’t realize that they are putting their home at risk when they use it to pay off other debts,” said Steve Rhode, president and co-founder of Myvesta, a nonprofit consumer education organization. “When you switch unsecured credit card debt to a secured loan backed by your home, you are offering your house to your creditors on a silver platter if you can’t make your payments.”

The most popular ways to consolidate debts with a home are using home equity to obtain a second mortgage or refinancing a current mortgage and taking cash out.

Mr Rhode has seen good and bad outcomes for people using home equity loans.

“For some people it’s just the thing they need to get through a tough time or save thousands of dollars in interest payments. For others the loans bring about more debt when they can’t control their credit card use,” Mr Rhode said.

For more information about refinancing a home to pay off debts, read the publication, What You Need to Know Before You Refinance Your Home to Pay Off Debts. It is available to download for free on the Comprehensive Financial Solutions website at MoneyHelp.org.