Consolidate Debt Using a Cash Out Refinance

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Get Rid of Credit Card Debt
Sometimes, luxuries can seem like necessities. You may not need the fancy cable television, the nice car, the expensive clothes - but don't they seem so very important? Before you know it, you're in debt. Want to know how to get rid of credit card debt? You aren't alone - and you aren't as bad off in debt as you may think.

There are many ways to get rid of credit card debt, which can se... Read debt consolidation 1 article



Debt reduction
If you feel like you are swimming in a sea of credit card debt, you are not alone. This fact probably will not make you feelany better, but the fact that you have lots of company means that there are a variety of debt reduction strategies and debt consolidation services you can use to get back on solid financial ground.

There is a thriving industry full of companies that do nothing but ... Read debt consolidation 1 article



Consolidate Debt Using a Cash Out Refinance
If you want to get a debt consolidation loan to repay credit card debt, and you own a home, should you get a new mortgage, or do a cash out refinance on your existing mortgage?

Both are forms of debt consolidation; here is how they work.

If you own a home with sufficient equity, you could get a new mortgage to pay off the old one. If your current mortgage is $100,000, and you need $50,000 to repay your credit card debts, you could get a new, $150,000 first mortgage. The first $100,000 goes to repay your existing mortgage, and the additional $50,000 goes towards your credit card debt. You end up with no credit card debt, and a $150,000 mortgage.

In a debt consolidation loan through a cash out refinance deal, instead of getting a new consolidated first mortgage, you get a new second mortgage. Continuing our previous example, instead of getting a new $150,000 first mortgage, you keep your $100,000 mortgage and get a new second mortgage for $50,000. You are getting cash out of your house, which is why it is called cash out refinancing.

Which is a better deal? The answer depends on a number of factors, including interest rates.

If your current first mortgage is at a low interest rate, you probably want to keep it in place; borrow the extra money you need with a new second mortgage. However, if your first mortgage is at a higher interest rate, and you can negotiate a lower combined rate on a new mortgage, the new mortgage may be the way to go. Beware of the fees and penalties to break your mortgage, which must be factored into the calculation.

Other factors to consider will be the length of the remaining term on your mortgage, and your tax bracket, since in the United States interest on your mortgage on your home is tax deductible, so mortgage debt is preferable to credit card debt.

Consult a mortgage expert to help you make the decision. Either way, a mortgage almost always has a lower interest rate than your credit cards, so whether it is a cash out refinance or a consolidation on your existing mortgage, evaluate your options, and pick the one that is best for you.

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Debt Consolidation for Debt Relief

The usual means for reducing debt exposure is contacting a consolidation agency or negotiating debt yourself. Debt consolidation implies contacting lenders and agreeing with them new repayment programs with lower monthly payments. This result can be achieved either by reducing the amount of money charged on interests or by extending the repayment schedules.

Debt Consolidation

The procedure is simple enough: Either you or the agent assigned to your case by the consolidation agency contacts each of your creditors and tries to convince them of the advantages they will get if they agree to lower your monthly payments. Sometimes in order to obtain their money sooner the lenders agree to a cut on the overall debt including capital and interests. In many cases debt consolidation agencies have obtained up to a 65% reduction of the debtor's outstanding loans and credit card balances.

Once the negotiation process is completed; your debt expenses will be greatly reduced. However, sometimes the procedure is not enough and you may not be able to afford the monthly payments. At this stage, some debt consolidation agencies offer a debt consolidation loan with a longer repayment program. You just pay this single monthly installment to them and they take care of your loan payments and bills.

The problem is that in certain situations there is too much debt that is non-negotiable. Typically, federal student loans and some private student loan programs, home loans, home equity loans and any other form of secured loan is too hard to negotiate because the lender is comfortable knowing that he can legally claim your property in case you fail to repay the loan.

Refinancing

One would think that refinancing would only solve the problem with your home loan, but truth is that by taking advantage of cash out refinance loans you can request a higher loan amount than the amount of your current mortgage's remaining debt and use that extra money to cancel other non-negotiable debt.

This procedure will not reduce your debt but will reduce your income/spending ratio because by refinancing you'll be able to spread your debt into a longer repayment program reducing the amount of your monthly payments. Since by applying for a cash-out refinance loan you'll get actual cash, you can use it for prepaying outstanding debt, but be careful to repay those loans that don't have prepayment penalties first; that way you'll save even more money.

The only difficulty that this method presents is that you need to have enough equity on your home in order to obtain a cash-out refinance loan. If a home equity loan is part of the debt you need to repay, chances are that you won't be able to use this system. However, there are some lenders offering up to 135% financing at slightly higher rates. If there is no other choice, you can resort to them.

Mary Wise, a professional consultant with twenty years in the financial field, helps people in the process of securing personal loans, mortgage, refinance or consolidation loans and preventing consumers from falling into the hands of fraudulent lenders. In her website Badcreditloanservices.com you will find more useful tips and interesting financial articles on this and many other related topics.




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Consolidate Debt Using a Cash Out Refinance
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