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Credit card debt is a common problem across the country. In fact, the average American family with credit cards has about $15,000 in credit card debt alone. With debt loads at high levels, many people are looking for ways to escape from underneath the crushing debt and high interest rates that most credit cards carry. One option for paying off credit card debt is to roll the debt into a mortgage when refinancing a home. Though this option will work, homeowner need to understand the potential problems that can come from using the equity in a home to pay off credit card debt.

Mortgage Refinance Savings

The primary reason that people chose to roll credit card debt into their mortgage is to obtain a lower interest rate on the debt. While mortgage rates start at below 5%, credit card interest rates average about 20%. On a $10,000 debt, the interest difference is $1500 per year. The savings created by the lower interest rate would allow a person who is in debt to pay off the debt much more quickly even if he or she kept paying the same monthly payment amount. However, as mortgage payments are spread out over a long period of time, many people will only make the minimum payment amount and not really pay the debt off any faster.

Credit Card Debt Transferred to Home

While paying off credit card debt when refinancing a home sounds good, the truth is that the debt isn’t really being paid off. The debt from the credit card is being transferred from the card to the home. The primary problem with this is that credit card debt is unsecured, while a mortgage debt is secured by the house. In simple terms, the worst case scenario for not making credit card payments is that the credit card company sues. However, the penalty for not making mortgage payment is the loss of the home. Additionally, the act of paying off the card can provide homeowner’s with a false sense of making progress on the debt, while the debt was really just moved from one place to another.

More Debt

For most people who pay off credit card debt with a mortgage, it won’t be long until the credit card debt starts piling up again. This is a serious risk for people who are already struggling with their current debt payments. The availability of credit created by paying off the card debt can be quite the temptation. Those people who fear that they might run up new debt after paying off the credit cards might want to consider cancelling the credit cards to remove the temptation to use them.