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Question:
DEC 12, 2011

Advice on using mortgage loans to pay off credit cards

I need to pay off my credit cards and get me another car, should I take another mortgage?

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Bill's Answer: Bills.com Resident Expert

Keep in mind that debts such as credit cards are unsecured in nature, and it is never a good idea to take out a secured mortgage loan to pay off unsecured debt. In effect, you are going to put up your home as collateral against the loan.

Before you opt for a mortgage loan, my recommendation is that you should try to get a personal consolidation loan. If you can qualify for a personal loan with an interest rate lower than the average interest rates being charged on your current debts, paying off these debts with an unsecured debt consolidation loan could improve your financial situation. The problem with this type of loan is that, unless you have very good credit, the interest rate charged for an unsecured personal loan may actually be more than you are currently paying for your other bills.

I encourage you to visit the Bills.com Debt Consolidation Resources page at http://www.bills.com/debt-consolidation/ to read about the various debt consolidation options available to consumers and how an unsecured debt consolidation loan may be able to assist you. To determine whether or not an unsecured personal loan can save you money, you should contact several lenders to find out the interest rates they can offer you on an unsecured personal loan. If you find that the interest rates offered are less than the average rate you are currently paying on your debts, then you should strongly consider consolidating your debts with an unsecured personal loan.

On the other hand, you can look at getting a mortgage loan to consolidate your debts only if you are unable to get a personal loan with a lower interest rate than what you currently pay on your car loan and credit cards.

If you want an introduction to pre-screened mortgage lenders, Bills.com makes it easy to compare mortgage offers and different loan types. Please visit the loan page and find a loan that meets your needs at:Mortgage Refinance Quote

No matter what your credit situation or the type of loan you intend to borrow, the key to making sure you obtain the best loan available is to shop around with different brokers and lenders. Listen carefully to the terms being offered by each lender, take notes, and compare the available loans side-by-side. Once you have selected a loan, make sure that the amount of fees and interest you agree to at closing are close to the estimate provided when you first inquired about the loan. If a lender tries to force you into a deal you feel uncomfortable about, feel free to walk away and take your business elsewhere.

I wish you the best of luck in finding a loan that meets your needs. I hope that the information I have provided will help you Find. Learn. Save.

Best,

Bill

www.Bills.com

Comments (8)


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Bills.com
November 16, 2009
Accountants are prudent, conservative, precise people who do not like cleaning up the messes people get themselves into. As I write these words in late 2009, many homeowners in the US are upside down in their homes because of the aftermath of the burst in the housing bubble, and because many used the equity in their homes as a piggy bank. Today, many accountants and property lawyers are tearing out their hair trying to find ways to keep those who have no equity in their homes. Your idea of refinancing or adding a second mortgage to pay off credit card debt and an auto loan is considered imprudent because so many homeowners before you have done just that and now face the consequences in a depressed housing market.
Donnasue A.
November 16, 2009
I have currently just purchased a home. I do not like that I have $10,000 in credit card debt (interest rate is 8.9%). Why shouldn't I take out a home equity home at 6.75% (fixed) and combine my car loan (21,000 at 8.5%) and my credit card debt? I understand that some loans are "secure" and others are not...BUT paying a lower interest rate, paying off in 5 years, AND being able to deduct the interest on my taxes doesn't seem to weigh out the "cons". I looked into paying off my debt with retirement savings but the penalities are too high- why is it that ALL accountants advise against a home equity loan? Thanks-
Frank .
April 28, 2009
This is typical, most banks will not lend to a trust, the easiest way around this would be to remove the home from the trust through escrow then as soon as the loan funds flip it back into the trust.
Rob .
April 25, 2009
I was all set with securing a $100,000. home equity loan until bank notice that my home (which I am using as collateral) is in a revocable trust and another name is on the title so now they have to resubmit. Are my chances still good. I desperately need money to move my business and would settle for less if it would help get this passed soon. I have a deadline, unfortunately.
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Bills.com
March 03, 2009
No, installment loans look better than revolving debt such as credit cards. But you should be careful to transfer this unsecured credit card debt to something that is secured by your home as a collateral. I always advise against this move as it puts your home in jeopardy, if for some reason you are unable to make the payments on this loan.
Joe .
March 03, 2009
I have pretty much used up all my credit on 12 credit cards that are running at 0%APR until summer. Does it look worse on my credit score to use a home equity loan to pay some of these off or should I try to manage just paying on them monthly?
Bradfordstroh@hotmail.com .
October 28, 2007
this is really a relative return question... but most likely you are best off not touching your 401k. I you refi your home, you will be swapping high interest credit card debt for lower interest mortgage debt -- and the interest is tax deductible, so the effective rate is MUCH lower. Now, if you are under the qualifying age (not in retirement) and you liquidate your 401k -- you will have a huge penalty, and pay a large penalty in taxes... so the effective cost of that capital is really high. BUT - you could take out a loan secured by your 401k at a really low rate. That would be better than the penalty taxes of taking money from your 401k. I hope that helps.
Jeremy D.
October 26, 2007
I am looking at consolidating or eliminating 21,000 in credit card debt. would I be better off refinancing my mortgages and paying off half the debt, or using my 401k to pay off all the debt? I don't have enough equity in the house to pay off all the debt, but I need to improve my cash flow monthly. Which is better refinance or use my 401K.
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