If the increased minimum payments on your credit cards are more than you can afford you may consider refinancing. You may be able to refinance and use the cash out of the equity of your home to pay off your credit cards.
Also, with the new bankruptcy laws enacted in October 2005, you may not be able to roll those credit cards into bankruptcy as easily as you could have prior to the new bankruptcy laws. If you have equity in your home, consolidating your bills would be the best way to eliminate debt and get a tax deduction.
Interest rates on mortgages are much lower than those on a credit card. Not only will you save money by paying less interest when you refinance, but the interest on your mortgage is tax deductible, which means even more savings.
With the new regualations credit card minimum payments are increasing 2% of the outstanding balance to 4%. So, your credit card payment just doubled.
The other major advantage when paying credit cards through your mortgage, besides the obvious payment relief, is that you turn non tax deductable interest into interest that is - in most cases - tax deductable.
After you pay off your credit cards it is smart to lower the credit limit or cancel all but two cards. You want to avoid making the same financial mistakes twice.
With the increase in credit card payments and many American homeowners starting to feel the "pinch", now is a great time to look into doing a cash out refinance or to look into obtaining a 2nd mortgage or Home Equity Line of Credit. One of the benefits would be that this will help to reduce your overall monthly expenses. Another benefit of consolidating your credit card debt is that most 1st mortgages, 2nd mortgages, and home equity lines of credit give you a grace period of up to 15 days unlike credit cards that will increase your rates if you are even 1 day late with your payments. One more benefit is that the interest on the mortgage may be tax deductible.
When refinancing and consolidating your credit card debt you typically save money each month which can then be used to pay down your mortgage faster. Just one extra payment per year on your mortgage can shorten your overall mortgage payments by several years in turn saving you thousands of dollars.
Rolling your unsecured debt such as credit cards into a secured debt such as a second mortgage may also have tax ramifications. Ask your mortgage professional or tax professional for more information.
To be inactive on your paying off high credit card debt has many negative financial effects.