Are you a disciplined consumer or undisciplined?
It's OK to be honest if you're the latter -- most of us are in the undisciplined group.
We ask because when consumers roll their credit card debt into a mortgage, called a debt consolidation mortgage, most believe it's a financial gift. For some consumers, it is a chance to relieve themselves of the burden of high interest debt; a second chance of sorts to reclaim responsibility and avoid the pitfalls that landed them in an oppressive debt situation.
But those of us in the 'undisciplined' category fail to see it that way. Instead, we use debt consolidation into a mortgage as a new, exciting window of credit -- a 'Get Out of Jail Free' card, if you will -- which eventually lands us -- again -- under water. And there's nothing free about it. Rich Rubino, CEO of Best Agent Today says, "If you're going to take that $10,000 limit card and go max it out again, then you just put a double-whammy on yourself. You added $10,000 to your mortgage, and you still have $10,000 in credit card debt".
Consequently, we don't recommend a debt consolidation mortgage for everyone.
Don't kid yourself, you're still paying that interest
Your credit card debt doesn't truly go away until you pay it off -- whichever method you take to make good on it.
For the responsible, disciplined consumer, a debt consolidation mortgage is a good idea when you leave that credit card with the $10,000 spending limit in your sock drawer. Or better yet, cut in half.
But here's the thing: Whatever percentage rate your mortgage might be -- 4 or 5 percent -- you will be paying interest on that $15,000 or $20,000 of debt you've rolled into your mortgage for the next 30 years.
It's a hard question
Which is worse, paying your 15-18 percent interest rate until you pay off the credit card, or a debt consolidation mortgage at 4-5 percent for the next 30 years? More often than not, you will pay more in interest over a 30-year mortgage rather than paying it off within 3-5 years, contingent upon your debt amount.
"It's a valid pathway, only if you're a disciplined consumer," says Rubino. "But if you're an undisciplined consumer, you'll max out a $5,000 or $10,000 credit card, refinance your home and then dump all their 18 percent credit card debt, which sounds wonderful. Pretty soon, however, you'll wind up with $15,000 on which you're paying 18 percent again. It's what I call paying interest on interest."
"If you're a disciplined consumer, and you take that $10,000 credit card and cut it up, you're going to be in a better position," Rubino added.
We recommend a hard look at your finances and spending habits before opting for a debt consolidation mortgage.
"If you're a disciplined person to begin with, you probably don't have $15,000 of debt," Rubino noted.
The top realtors are at your fingertips
While a debt consolidation mortgage is a personal decision, Best Agent Today can instantly help you find the top certified producing realtors in your desired area by simply entering your zip code in the window on our front page.
Currently, Best Agent Today serves seven states along with the cities of Las Vegas and Peoria, Ill., and soon to be expanding across the country.