Refinancing your home can help bring your payments back into perspective but there are a few things to consider before putting up your home as collateral for a debt consolidation.The first thing you should look at is the total cost for consolidating your debt. This includes interest compounded by the number of years you will have the new loan. Most of the time your new mortgage loan will have a higher payment. Even if your monthly payment turns out to be lower, you can end up paying many times more than you would if you had paid off the debts separately. This is especially true if the interest is close to what you are currently paying for the debt. It can also cost more if the new consolidation loan is a long-term loan. Long- term loans are common when consolidating with a mortgage refinance.Don’t discredit consolidating with your home equity right away. There is a possible benefit that can help reduce the amount you pay overall. You can get a reduction in the amount you need to pay off the debt by way of tax deductions on an equity loan. Be sure that you figure this extra savings into your calculations to get a better estimate of what the consolidation is actually going to cost you. Another thing that can help even the financial playing field with this type of loan is home improvement. Use part of the consolidation loan make improvements to your home thus increasing the value of your home. This strategy can offset some of the cost for the debt you are consolidating by the increased equity in your home. However, you wouldn’t see any of this offset until you actually sell the home.A home equity debt consolidation loan can work for many people trying to get out of debt. However, if you are consolidating credit card accounts, you should resist the urge to use them for unnecessary purchases in the future. If you have a habit of running your credit cards to their maximum limits, then you will soon find yourself back in the same situation again. If you run up your credit cards a second time, you will have no way to refinance your way out again. If you do so, you may soon discover that you still have the high debt payments as well as a higher mortgage payment. To truly get out from under your debt, you need to be responsible for how you handle your spending.
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