The truth about credit card debt

Consolidating your high-interest credit card debt with your mortgage could be a great option if you have sufficient equity in your home. It can reduce your overall cost of borrowing and free up cash flow each month.

Credit card debt is considered “bad debt” because we generally use them to purchase items that depreciate in value…..vacations, clothes, meals at restaurants and yes, those big screen TVs!

If you aren’t paying off your credit card balance monthly, how much do you think you really paid for the big screen TV that you bought on sale after Christmas, if you carry on only making the minimum monthly payment? Here’s a fact. If you paid $2000 for that TV with an interest rate of 19.5% on your credit card and you are just make the minimum monthly payments, it will take you over 14 years to pay for your TV. YES! FOURTEEN YEARS!! And it will cost you over $4000!! Not such a bargain.

Borrowing to the max on your credit cards can leave you with very little wiggle room. What happens if interest rates start to rise? The answer is that your minimum payment will just get bigger and bigger. And what happens if you lose your job? How can you possibly keep making those minimum monthly payments?

There are great possibilities for real savings by using the equity in your home as a debt consolidation tool. The most attractive reason for consolidating debt into a mortgage is that there will definitely be savings simply by lowering the interest rate you are paying on your debt. Another reason would be to lower your monthly payments. This could free up cash flow to start investing and saving for retirement.

There could be some costs involved if you must break your current mortgage and there are many variables at play here: interest rates, amortization, fees and penalties for your specific situation. You may find the overall cost of borrowing to be higher or lower than your current situation. Always run through the math with a mortgage broker. The benefits really depend on how the math works out and whether you are committed to changing your lifestyle to prevent charging up the balances on those credit cards again. You will need to master a budget.

Are you being overwhelmed by your credit card debt and would you like to start 2015 on the right foot? If you would like a no obligation review of your current situation, please give me a call at 250-826-3543 or email me at [email protected]

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.