24 Apr Got Debt? Consolidate and Get them Paid Down
Debt is something that just about everyone is struggling with these days. We live in a consumer-based society and just about everyone wants to have the latest and the best gadget coming onto the market. In some cases, mounting debt is due to job loss or underemployment. Once someone starts to get even a bit behind in expenses and they start using a line of credit or a credit card to stay afloat, it’s very difficult to catch up, even when their income gets back to its previous level. While debt is a four-letter word, we don’t have to feel dirty or ashamed for having financial issues. The better choice is to take charge of the situation by looking at options for consolidating the debt into a manageable payment to get it paid down – and paid off over time.
Use the Equity in Your Home to Pay Off Debt
You could consider leveraging some of the equity in your home to pay off what you owe. Mortgage rules were tightened in July 2012, tightening up the rules for lenders. The maximum amortization period was shortened by five years to 25 years, and the refinancing limit was lowered to 80 percent of a home’s value. Depending on where you live, the value of your home and how much you want to borrow, you may qualify for this option. Should you add on to your mortgage to pay off debt? It can make sense to use your equity in this way, but you need to consider this option very carefully before making your decision. Choosing to deal with your debt in this way is a payment plan; it doesn’t make it go away. You will also need a follow-up plan to ensure that you don’t start to incur debt again once you pay off your credit cards, lines of credit, etc.
Adding to Your Mortgage to Pay Off Debt: Open or Closed
- If you currently have a mortgage and you are interested in consolidating debt, you will need to look at whether it is open or closed.
- If you have an open mortgage, you have the flexibility to pay it off at any time without incurring any penalties. ‘
A closed mortgage has the benefit of a lower interest rate. However, you can only refinance or renegotiate its terms before it matures according to the conditions of the contract. You may be able to refinance before the maturity date, but you would be required to pay a penalty.
Refinancing Your Mortgage to Consolidate Your Debt
If you are interested in adding to your mortgage to consolidate your debt and your mortgage is up for renewal in the next few months, start looking for financing for the amount you would like to borrow that includes your current mortgage and your debt. In the meantime, continue making your payments to your creditors as usual.
In a situation where you have a closed mortgage which is not up for renewal soon, you may still be able to refinance. Sit down with a lending professional and look at the numbers. Find out how much you would be paying if you refinanced your home under a new mortgage, even if you had to pay a penalty of a few months’ interest to do so.
Compare them with the amount you are paying now for your existing debts:
- Credit cards
- Lines of credit
- Personal loans
- Student loans
- Car loans
You could consolidate them into one lower payment with your mortgage. Once you have the consolidation in place, you will need to discipline yourself to make sure that you don’t start to accumulate debt.
Your home is your greatest asset, and you don’t want to put it at risk by repeatedly refinancing it to pay for debt. If you choose this option to deal with your debt issues, you’ll need to draw a line under the behavior that led to your getting into trouble with debt in the first place.
Shop Around for Best Mortgage Rates
When you are looking for a mortgage, it pays to shop around to find the best rates. You want to find the best possible term for your situation. Working with a mortgage broker makes sense. They can shop the market for you to help you find the best rates for the financing you need.