Business & Finance Finance

Debt Consolidation Not Worth Losing Your

Leveraging your home mortgage to pay off credit card debt has become very popular of late. Homeowners with real value in their homes and a mountain of credit card debt find the prospect of eliminating their high-interest debt very enticing. This process may seem helpful, but it's not. The reason you shouldn't borrow against your mortgage to pay off your credit card debt is simple: It's robbing Peter to pay Paul.

First, a description of what exactly occurs in this process, often called debt consolidation.

* A homeowner who has accumulated a lot of value in their home, called equity, can borrow against that value for things like home repairs, vacations or debt consolidation. Debt consolidation occurs when you use your loan to pay off your credit card debt.

* Then, after acquiring the new loan or home equity line of credit (HELOC) you pay it back every month rather than your credit cards, as if you were just paying your mortgage.

This process is bad for you financially because you take the value out of a long-term relatively high-return investment (your home) and use it to pay off a relatively small debt.

Some will say "$10,000 in credit card debt isn't small!" and I agree, that is a lot of high-interest debt to owe. But borrowing from your investment to pay off your debt is unwise. Not only are you jeopardizing your investment, but you are also perpetuating bad habits.

Spending on credit cards is a habit, pure and simple. If you truly want to eliminate your debt, do away with your cards. Once you stop paying on your cards, you can chip away at your debt and have it paid off in a relatively short amount of time. Additionally, this experience will teach you to better manage your finances.

If your debt is out of control, you need more serious help. Debt settlement companies help you cancel a large portion of your debt, leaving you with a much lower and more manageable amount to repay.

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