While mortgage loans are considered good debt, credit card debts are considered bad debts. Although this may be true, this generalization has misled homeowners to refinance their mortgage loan in order to pay off their credit card debt. It is never a good idea to use your equity just to pay for your credit card bills.
You may have a good amount of equity that you can tap to and it is always tempting to cash out and refinance but here are some reasons to convince you that it is a bad idea you should not entertain:
Credit card debt is unsecured debt
You owe money when you spend using your credit card and that is unsecured debt since you do not have a collateral for such debts. The worst move you can do is make this a secured debt by putting your property up at risk. You basically gamble when you cash out on your refinancing move. You can pay off your credit card without risking your house but when you take out funds from your equity, you basically up the risk of not paying it and losing it.
Refinancing does not come free
When you refinance a property, you do not just go over the counter and say you want to get a new refinancing scheme. Taking this step will involve money. You will most likely need a home inspection and an appraisal. You also need to pay for new closing costs and a bunch of fees for the loan. You will end up spending more than just putting the money to lessen your credit card debt.
Prolonging the agony
Paying off your credit card debt thru home refinancing will just make you pay off your debt in a stretched period. Remember that it will not disappear but it will only be rolled up to what you owe to your home loan lender.
Damage to your credit score
Filing for a refinance will have a ding on your credit score since an inquiry has to be made by your creditor. This will have a considerable impact to your credit score. The effect may just be short-term since the credit card debt will be paid off but a bigger loan will appear on your credit history, and that will be another issue you need to deal with.