Consumers have taken a double whammy in recent years, as the economic recession has coincided with credit card companies raising their interest rates. As a result, credit card debt is one of the most common types of debt, and one of the stickiest to try and get out of. Home equity is one way Connecticut homeowners can relieve the crunch. Refinancing to consolidate debt may offer homeowners in the Nutmeg 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. 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.
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.