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Debt Consolidation

What is Debt Consolidation?

Debt consolidation describes to the action of taking out a new Florida home loan to pay off other obligations and consumer debt. Numerous debts are merged into a single, larger debt, such as a second mortgage (or home equity line of credit) loan, typically with lower payoff terms. This includes a smaller interest rate and a shorter monthly payment. Debt consolidation in Florida can be used as a tool to restructure student loan debt, credit card debt or medical bills.

Florida Debt Consolidation with a Mortgage Loan

Debt consolidation is the simple process of pooling all your collective bills and consolidating them into one. While consumers can apply to banks or credit card companies for a debt consolidation, the better rates and terms are found in leveraging the equity in your home. In fact, Florida home prices have never been higher and now is an opportune time to re-evaluate a market value and updated equity value in your Florida home.

If you are a Florida homeowner and have sizable outstanding balances on one or more credit cards and only making minimum payments, then an equity loan might be right for you. As you know, minimum payments only account for interest only on each credit card. Unfortunately, it could take years and an exorbitant amount of interest. However, homeowners can tap the equity in their home, consolidate all their debts into one, easy Florida debt consolidation mortgage. However, the drawback is that putting more pressure on your mortgage payment puts your home in jeopardy if you can’t make the monthly payments.

Main Features of Debt Consolidation

  • A home equity loan is one way to pay off high interest consumer debt.
  • Florida home equity loans (second mortgage) almost always lower interest rates and payments associated with credit card debt.
  • The risk of a home equity loan for “other consumer” debt is that you are putting your home on the line if unable to repay loan.

Using Home Equity to Pay off Credit Card Bills

The primary benefit of using a home equity loan to pay off credit card debt is that you'll usually get a much lower interest rate than your credit cards. For example, the average interest rate on a home equity loan is under 5%, but the average credit card is charging close to 15%. This represents an enormous savings over time. At the same time, leveraging a home equity loan to pay off multiple credit cards will simplify your life. You will just one payment to make each month instead of several.

Note that one former advantage of home equity loans has been suspended, at least for the next several years. At one time, the interest you paid on a home equity loan was tax-deductible, while credit card interest was not.

Dangers of Paying off Credit Card Debt with a Home Mortgage

The biggest downside to consolidating credit card debt into a Florida home mortgage is risking your home. Since your home is collateral for the loan, just as it does for your original mortgage, the lender could seize and sell it if you can’t make the payments and get behind. Also, using a home equity loan to consolidate credit card debt is no longer tax deductible. According to the Tax Cuts and Jobs Act of 2017, the interest on home equity loans is deductible only if you use the loan to "buy, build, or substantially improve" the home that secures the loan. That provision is slated to remain in effect for at least five more years.

Related Links
Second Mortgage
Equity Line of Credit

Debt consolidation

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