Advice on Refinance to Pay Off Debts - The Bills.com Blog

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Advice on Refinance to Pay Off Debts

Question: I Have about $27,000.00 in credit card debt due to a divorce. I own my home and have about $50,000.00 in equity in my home. I make about $27,000.00 a year. What would be better a refi or a debt plan lowering my credit. I am currently having trouble paying the credit cards on time.

Answer: Unfortunately, many Americans who have gone through a divorce find themselves strugglingwith debt in addition to the numerous other personal and financial difficulties that often accompany divorce. You are by no means alone, and you should know that there are numerous types of assistance available to people in your situation. To read more about debt and the options available to consumers struggling to repay their debts, I encourage you to visit the Bills.com Debt Help page.

Since you have equity in your home, you should strongly consider tapping into that equity to resolve these outstanding debts. Whether or not a refinance will help you solve your financial difficulties will largely depend on the type of refinance loan available to you. If you have a positive credit rating and a good payment history with your current mortgage lender, you may be able to obtain a cash-out refinance or home equity loan large enough to resolve all of your outstanding credit card debt. This type of loan is often called a “debt consolidation loan” when used primarily to repay unsecured debts. Secured consolidation loans help many consumers by consolidating all of their debts into a single monthly payment with a lower interest rate and payment amount than those charged on their unsecured debts. However, be careful before you borrow money against your home to pay off credit cards and unsecured loans; you are converting what was previously unsecured debt into secured debt. This could cause you problems down the road if for some reason you are unable to make your payments, or if life circumstances force you to file bankruptcy, as you may not be able to discharge the secured debt as you would unsecured

debt. However, secured debt consolidation loans work for many people, so this is an option to consider.

Another option to consider is a Consumer Credit Counseling Service, or CCCS. CCCS companies offer numerous services, such as financial counseling and budget planning, as well as Debt Management Plans (DMPs). In a DMP, the CCCS would arrange a new payment amount with each of your creditors, usually based on a reduced interest rate. You would then make a single monthly payment to the CCCS which would distribute the funds to your creditors, based on the new payment amounts. There are several drawbacks to CCCS, though. First, depending on your creditors, it may not be able to reduce your monthly payments enough to improve your financial situation. Second, it may have a negative impact on your ability to obtain a loan, so you may not wish to enter into a DMP if you anticipate any large purchases, such as home or an auto, in the near future. Third, the average DMP takes around five years to pay off your debts, so you must be willing and able to commit to a long-term repayment plan.

You may also want to consider the services offered by debt settlement firms. Rather than making monthly payments to your creditors, these programs negotiate lump sum settlements with your creditors, frequently reducing your debts by 50% to 60% of your principal balances. These programs usually take only 2-3 years to complete, so this is a good option for many people to rid themselves of debt in a relatively speedy manner. In many cases they can also reduce your monthly payment toward your debt. There is one major drawback to debt settlement programs, though–they

will significantly damage your credit while in the program and for at least a year or two afterwards. However, if you are currently unable to afford to pay your creditors, the hit to your credit may be worth the benefit of ridding yourself of credit card debt.

You should keep in mind that you do not necessarily need to choose one of these options to the exclusion of the others. For example, many consumers tap into their home equity using a refinance or home equity loan, then hire a debt negotiation firm to negotiate lump sum settlements with their creditors using the money borrowed against their homes. This strategy can be particularly effective as it allows consumers to pay off their debts quickly while benefitting from the tremendous savings that can be offered by a debt negotiation program. I encourage you to speak with a professional debt counselor to help you determine what debt relief option will work best for you. If you submit your contact information to the Bills.com Savings Center at Debt Relief Savings Quote , we can have one of Bills.com's affiliate debt relief service providers contact you to discuss the options available to you. You should also visit the Bills.com Debt Relief page to learn more about the debt relief options available to you.

I wish you the best of luck in resolving these debts. Hopefully, the information I have provided will help you find a workable solution to your financial difficulties and help you Find. Learn. Save.

Best,
Bill
www.bills.com/blog

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Bill has answered all sorts of questions and has been able to provide those in need of financial guidance with helpful and valuable advice and information on their specific financial area of interest. If you need specific guidance on any of the above mentioned financial areas, feel free to Ask Bill your financial questions and get better informed.

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