Can Refinancing get me out of Debt?

If you are in debt and worried about making your monthly payments, then also consider steps other than refinancing in order to get out from under your burdens. Refinancing is a big step that can lead to some unforeseen consequences for the unfortunate home owner. If you are just hoping to get a little extra cash to get rid of a credit card debt faster, then refinancing might be a bit safer and more of an option to consider.

Why shouldn’t I refinance to get me out of debt trouble?
Back in the times of the Great Depression, people were losing their savings en masse, and were losing their homes in incredible numbers. As part of an attempt to get people comfortable with reinvesting their money in things like homes once things stabilized, the government passed a bill that protected the actual savings and assets of home buyers. This meant that if they were foreclosed upon, their personal property would be protected under the law from seizure by the lending institution.

Unfortunately, this was all done in the days before refinancing was conceived of, and the same protections do not apply to refinanced homes. This means that if you were to refinance and then fall behind on your payments, your house would be foreclosed upon and all of your property from your bank accounts to your car to your computer would be seized by the lending institution and used to get back some of the money that they will have lost in their transaction with you.

If you are in debt and worried about paying your bills, a home equity loan is a much better option that will allow you to consolidate your debt without putting you at substantial additional risk. Home equity loans are also typically offered at a lower interest rate than credit cards or personal loans, so you can get out of debt and enjoy lower interest rates at the same time.

And if I just want the extra cash?
If you are not at risk of getting behind on your bills but you intend to pay down a bit of debt with the extra cash that a refinancing could get you, then this could be a good option for you. If your credit is much better than it was when you got the original loan terms, then refinancing could be a great way to get a few hundred dollars in extra cash each month to pay down your debts and reinvest in other ways, perhaps even putting the money back into your loan to build your equity.

The best thing to do with this extra money once your debts are paid down is to put at least some of it toward your house in the form of extra payments so that you will have that equity to work from should you ever be hurting for cash in the future. In this way you can better your finances now and keep them healthy for the future at the same time.