Solving Credit Card Debt with your Home Equity

Credit card debt is perhaps the most common culprit for many consumer debt woes. Consumers across the nation have taken a double whammy in recent years as the economic recession has coincided with credit card companies raising their interest rates. Feeling overwhelmed by debt is a stressful feeling, one that is, unfortunately, all too familiar to many Michigan homeowners, especially in the wake of the auto industry's woes. Refinancing to consolidate debt may offer homeowners in the Great Lakes state some financial relief.

Credit card debt and a mortgage have one very significant difference: The interest you pay on a credit card is not tax-deductible, meaning you pay a higher rate than you do on your mortgage. Because of this, credit card debt is seen as "bad debt," while a mortgage is termed as "good debt." Using your home equity to pay off your high-interest credit card debt can save you money in the long run.

Using your home equity, instead of credit cards, to charge expensive purchases may also be a smart move. Refinancing your mortgage to get cash back from your home equity and pay off credit cards could result in a slightly higher mortgage rate; but that's still likely to fall much lower than the 20% (or more) charged by many credit card companies.

You can also refinance a second loan while consolidating high interest credit card debt at the same time. Usually the borrower saves a few hundred dollars a month because fixed-rate options bring reduced interest rates on fixed terms. Many lenders also offer debt consolidation incentives with a second loan that can lower credit card bills.