Refinancing Credit Card Debt with a Debt Consolidation Loan Secured with a Second Mortgage

With rising gas prices and the cost of living spiraling out of control, many people are having a hard time making it from paycheck to paycheck. Wages are just not keeping pace with inflation. The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), passed in October 2005, has made it significantly more difficult and expensive to file for bankruptcy and doubled the minimum payment requirements for credit card debt.

In addition to higher minimum payment requirements, if you are late on a credit card payment or you go over a credit limit, you are charged a universal default rate--a penalty rate that replaces your regular annual percentage rate (APR) when your account is perceived to be in default. This default rate stays for as long as the issuer wants and can even spread to your other credit card accounts. So, if you have five credit cards, you could potentially be paying exorbitant penalty rates for all five just for being late on one. Currently, the average penalty rate is 25.88 percent, up from 23.26 percent in 2001, according to CardWeb.com. And often, "a FICO credit score below 600 will trigger a universal default clause," said CardWeb.com CEO Robert McKinley in an email exchange.

Many people are combating rising credit card interest rates and avoiding harassing bill collectors by refinancing credit card debts with cash out second mortgages and debt consolidation loans. Particularly if you are paying one or more universal default rates, the lowered interest alone will result in lower payments and significant monthly savings. For those with good rates on their existing mortgages, refinancing revolving debt through home equity loans (second mortgages) still results in significantly lowered interest compared with credit card rates and noticeably lower payments each month. Even with a second mortgage payment, many consumers still notice significant savings each month.

Debt consolidation mortgage refinancing or getting a second mortgage also has tax benefits. Unlike credit card debt, the interest on the refinance or second mortgage loan that you pay could be up to 100% tax deductible. Thus, you are not only saving money each month, you could also enjoy a nice tax write-off each year. A debt consolidation loan or second mortgage could be just what you need to stretch your paycheck and get needed relief from burdensome debts.

Maria Ny is an acclaimed free-lance writer from San Diego, California. She has published many articles that covered a broad range of subjects ranging from Real Estate Financing, Debt Consolidation, Bankruptcy Reform, Home Equity, Credit Repair to Subordinate Financing. Check out her helpful tips and home finance articles online at BD Nationwide Mortgage and learn everything you wanted to know about Second Mortgage & Debt Consolidation. You can learn more about financing credit card debt and get additional loan parameters for debt consolidation loans. Get a free loan quote for a home equity loans. We suggest you get more information and learn more about the guidelines for fixed rate second mortgages that could help lower your monthly payments by reducing the high interest rates of your credit card debt.

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