Personal Financial Tip Vol. 12 - Credit Cards

I'm often asked about the pro's and con's of refinancing credit card debt via a home refinancing and/or a home equity loan.

In general, here's my answer.

Don't do it.

First, keep in mind that credit card purchases are generally for short lived purchases. To refinance is essentially financing a trip to the Olive Garden for 15 years.

Second, inevitably you'll find that as soon as you pay off those cards, you'll have those very cards racked up in debt again.

Third, going through the process of aggressively paying off cards will develop your budgeting skills to pay off short lived purchases.

Fourth, credit card debt is unsecured, by placing on debt against you're home you'll be making your home subject to creditors and possible foreclosure.

What I recommend is a predetermined budget of your debt as well as all your monthly bills.

Let's say It looks like this

Mortgage $1,000/month (80,000 total)
Car $385/month (15,000)
VISA $154/month (8,750)
Mastercard 137 month (5,750)
Macy's Card 20/month (1750)
Gas card $20 (580)

Start by budgeting for how much you can pay on your debt every month. In this case, let's assume you have 2,100/month for debt payment.

Begin by paying the minimum for everything but the smallest balance. When those are paid place the remaining (in this case $384) on thesmallest balance. Don't worry about the interest rates.

You'll find that as soon as you have that gas card paid off, you'll be building momentum against the remaining debt.

If you don't believe it can be done... believe me it can. I did it and my situation looked worse than this one.