Sedona Mortgages and Home Loans
National Bank of Arizona
REFINANCE OR PAYOFF DEBT ?
June , 2008
by Pam Bayles
There are two ways to overcome credit card debt.
- The first is refinancing
your home, and using a new mortgage to pay off your debt.
- The second
is to change your behavior and pay off your credit card debt slowly.
Those of us who find ourselves in heavy credit card
debt tend to like things that come easy. You have racked up countless
dollars in debt through bypassing a disciplined savings plan. Material
goods and fun times have come easy, but so has the long-term pain.
Straddled with debt and over spending has now put you with a low credit
score and high monthly credit card payments. Most often opt for refinancing.
With one refinance, you can wipe those credit card balances clean.
However, is it really the smartest financial move, especially over
the long haul?
Is refinancing your home the smartest move to overcoming credit card debt?
If you're carrying heavy debt and can't make your
minimum monthly payments, then a refinance to pay off debt might
make sense. Lumping all your credit card balances into one home mortgage
with a lower interest rate will lower your overall monthly payments.
As an added bonus, the interest on a home mortgage is tax deductible.
However, those lower monthly payments are not solely
the result of a better rate. Your refinance generally includes an
extended repayment term. It will decrease your monthly payments, but
you'll pay over a longer period of time. You might be so cash-strapped,
that this is your only alternative. A change in spending behavior
may be a more prudent solution.
Are you living beyond your means?
Sometimes refinancing is a solution that really doesn't
address the core problem: Living beyond your means. If you've taken
the bait offered by credit card companies and shelled out money like
there's no tomorrow, wiping your credit card balances clean won't
change your habits today. Instead, you'll probably repeat your past
mistakes, and run up even more debt in the future. Unfortunately,
a refinance option might not be available to bail you out, because
you've probably tapped all your home equity with your first refinance.
Better long-term money management starts with a Budget!
A better long-term option involves changing your
money management habits. Instead of caving in to impulse buys, start
budgeting your money and living within your means. Analyze your past
expenditures, and find out where you can spend less and save more.
As you set up your budget, allocate a certain amount to paying off
your credit cards on a monthly basis. Start by paying off the plastic
with the highest interest rate first. I have attached a home budget
to get you started.
Debt is easy to acquire, thanks to credit cards,
but it's not so easy to make it go away. If you are interested in
information or rates on a refinance, call Pam Bayles, National Bank
of Arizona at 928-204-3044 or 800-994.3677.
Get pre-approved. Call and we can discuss your loan strategy.
Pam Bayles (928) 203-9114.
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my SEDONA MORTGAGE TIPS - 2008
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