Consolidating debt can be hard to understand. Many people have different ideas about what a person who is deep in credit card debt should do to get back on their feet. These different points of view come from the fact that each person's best solution is different and that if you're in trouble, you should do your homework. Abusing credit cards is not a new problem, though. Let's look at second mortgage loans, which are becoming a very popular way for homeowners to pay off credit card debt.
Of course, the best way to deal with credit card debt is to never get into it in the first place. The chief judge of the U.S. Bankruptcy Court for the Western district of New York, Judge John C. Ninfo II, said that credit card collectors, "are like the Vikings from Capital One. They will rob you and rape you in any way they can." Ninfo says that by the time most college students graduate, they owe $3,000 on their credit cards. This is a good way to start getting into debt. Interest on credit cards adds up, and if you only pay the minimum, your debt will add up as well. You may be out of college now, but if your credit card debt is getting out of hand, you should cut up your credit cards and start over.
The next step you might want to think about is getting a loan to pay off all your debts at once. If you own a house, you might be able to do this with a home equity loan or a second mortgage. With a home equity loan, the interest rate is much lower, and if it's a fixed rate, you'll be able to budget better. Keep in mind, though, that this is because it's a secure loan. With a second fixed-rate mortgage, your payments may be lower and you may get tax breaks, but if you don't pay, you'll lose your home. It's important to remember this.
Refinancing your mortgage is another way to get rid of debt or just lower your payments. If you have a higher interest rate, now is the time to take advantage of it before rates go up even more. Adjustable-rate mortgages might be too risky if you don't plan to sell your home in a few years, but you might be able to refinance and get cash out to pay off your unsecured debt. You might also be able to refinance to get rid of mortgage insurance and save a little money on your monthly mortgage payments. Don't forget to cut up your credit cards if you decide to refinance your high-interest debt. Start over. Don't dig your self a deeper hole!
