With interest rates hovering at all-time lows, it has created a stampede of people who have resorted to refinancing their homes. This has become a very attractive alternative to many who are financially overextended. People are using their homes as cash cows, withdrawing the equity they have built up over the years to pay off their credit card debt. In fact, for some, this may be the choice of preference.
However, there are several pitfalls that many overlook in their rush to use this option. First, you are losing all the equity you have worked so long and hard to build up in your home. Second, you have now freed up all those credit cards which you just paid off, which if abused again will get you right back into the same hot water as before, this time with no equity in your home to save the day. If you do refinance to pay off your credit card debt, you must cancel most of your credit cards to remove this temptation.
Lastly, if you suffer another financial set back, you may now run the risk of losing the family home through foreclosure; all this because you made the tragic mistake of turning unsecured debts, your credit card’s, into a secured debt, your home. You should definitely talk with your financial advisor before you refinance to make sure it is the best option for your particular situation. Remember, what might have been right for your neighbor is not necessarily the right choice for you.
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The Credit Counseling Foundation, Inc
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