Debt consolidation with refinancing and home equity loans

A new year is here, but your old credit card debt lingers. How can you get rid of costly consumer debt if you don't have the resources to pay off your credit cards? Debt consolidation loans are an option, but in today's challenging credit environment, qualifying for unsecured loans can be difficult. Homeowners may wish to consider consolidating consumer debt with home equity loans or a refinance mortgage. Here's how each option works for consolidating debt.

Home equity loans and lines of credit:

With homeowners facing falling property values in many areas, getting home equity loans is not as easy as in the past. Ask your mortgage company and shop online for home equity loans. If you have enough home equity, a home equity loan or line of credit can supply funds needed for paying off credit card debt and other bills. An advantage to a home equity line of credit is that you use only what you need and pay finance charges on amounts used. They are also fairly inexpensive to set up.

Refinancing your mortgage:

This option may not be worthwhile unless you can significantly lower your mortgage rate. Cash-out refinancing can provide extra funds for paying off debt, but you'll also pay closing costs. Determining how long it takes to break even on closing costs and comparing the cost of refinancing to the cost of your carrying credit card debt can help determine if refinancing for debt consolidation is feasible. Using a refinance calculator assists with comparing your current mortgage terms with proposed refinancing rates and terms.

Drawbacks of debt consolidation loans, refinancing, and home equity loans

Knowing how and why you accumulated credit card debt is an important aspect of deciding how or if debt consolidation can work for you. If you're a compulsive shopper, or spend lavishly on recreation and the latest electronics, you can return to trouble if you run up credit card balances after further mortgaging your home or otherwise borrowing for debt consolidation. You could risk foreclosure or bankruptcy. Finding debt help through credit counseling or a financial advisor can help you avoid returning to old spending habits.

Using free mortgage calculators including a mortgage comparison calculatoris helpful for evaluating mortgage refinance and home equity loan quotes. Review mortgage quotes closely, as they indicate additional lender costs including points and lender fees and costs.