Should I cash out equity in my home to pay it off my high interest credit card balances?

Using the equity in your home to pay off your high interest credit cards may seem like a no brainer. After all doesn’t it make sense to lower you interest cost from 18% to 7%? Well maybe, if that was the only change that happens when you reposition that debt from an unsecured credit card to a secured mortgage debt. Before you rush out to refinance those high interest credit card balances consider the follow points.

Point 1

You are converting an unsecured debt into a secured debt. Okay, so what? Well consider that if you lose your job or get into deeper financial trouble that unsecured credit card debt would now tied to your biggest asset. Your home! Remember that if you now fail to pay the new secured debt (a new second mortgage), you may loose your home through foreclosure.

Point 2

Ask yourself if you clear your credit card balances to zero will you be disciplined enough to not run the balances right back up? If you have even the slightest doubts that you can be disciplined enough to keep the balances low DON’T DO IT. You will end up in a deeper hole. Remember when you find yourself in the hole STOP DIGGING!

Point 3

Some financial advisers will tell you that moving you credit card debt to a second mortgage or Home Equity Loan may be tax deductible. While it is true that interest on your home loan may be tax-deductible and interest on credit card debt is not tax deductible this is a terrible reason to restructure your debt in this fashion.

These are just three points to consider before converting credit card debt to a debt secured by your home. It is always a great idea to seek advice and council from a trusted professional such as your tax adviser or attorney before you sign on the dotted line.

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