Consolidating credit card debt into a loan

Those with enough equity in their homes have been able to substantially reduce the monthly payments on credit card debt, student loans and personal loans, says Michael Moskowitz, president of Equity Now, a mortgage bank in New York City.

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Too much credit card debt can get in the way of a homeowner trying to qualify for a cash-out refinance because they don’t meet the lender’s debt-to-income ratio requirement, or DTI.

In other words, their monthly debt expenses are too high compared with their income.

But you should first consult a qualified credit counselor.

You may be able to lower your cost of credit by consolidating your debt through a home equity loan or home equity line of credit.

“The real issue behind the credit card debt is that they may need to create a better spending plan for the family,” Harper says.

“And if you haven’t addressed that deficit or the reason that credit card debt continues to grow, then you are going to find yourself right back in that situation again and there may be no equity at that point.” The requirements to get a debt consolidation mortgage, or cash-out refinance, are not much different from those to get a standard mortgage — except for the minimum equity requirement, says Bill Banfield, a vice president for Quicken Loans.

Consolidation means that your various debts, such as credit card bills or loan payments, are rolled into one monthly payment.

If you have multiple credit card accounts or loans, debt consolidation through a credit counseling service can help simplify or lower your payments.

But on the other hand, having maxed out the limit on your credit cards also hurts your score.

This lending requirement is somewhat useless when it comes to preventing the borrower from getting into debt again because obviously it doesn’t stop the homeowner from opening new credit card accounts right after closing, Harper says.

But in some cases, it’s possible to qualify for a debt consolidation mortgage by excluding the credit card debt from the DTI, as long as the homeowner agrees to pay off and close the accounts at closing, says Matt Hackett, operations manager for Equity Now.

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