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6 FAQs About Debt Consolidation in Connecticut

When you have a certain amount of debt, it can sometimes feel difficult to get your head above water. However, many homeowners can consolidate their debt through refinancing to lower their interest rates and merge their monthly bills under one payment.

Below are the most frequently asked questions about debt consolidation through refinancing in Connecticut.

1. What is debt consolidation?

Paying your debts can be a headache when you consider the varying due dates and interest rates. With debt consolidation, all of your debt is transferred into one loan, so you’re only responsible for one monthly payment with one set interest rate.

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2. What are the different types of debt?

There are two different types of debt: secured and unsecured.

Unsecured debt is based on your promise to pay, meaning there’s no collateral. This includes things like credit card debt and student loans, which are situations where the creditor doesn’t have a right to take any of your assets.

There is also secured debt, which ties the loan to property. Car loans and mortgages are considered secured debt because there are assets in place to act as collateral.

3. What types of debt can I consolidate?

Connecticut has some of the highest debt averages in the country. For example, the average amount of credit card debt is $7,304 and the average amount of student loan debt is $35,494. Many Connecticut homeowners can benefit from consolidating certain types of secured and unsecured debt such as student loans, credit cards, car loans, personal loans and medical bills.

4. How do I know if I can consolidate my debt?

One of the best ways to consolidate debt is to refinance your mortgage, but this may not be the right option for everyone. However, here are a few types of homeowners who could benefit the most:

  • Those with a certain amount of equity may qualify for refinancing.
  • Homeowners with high-interest debts that could benefit from merging their debt under a lower interest rate.
  • Homeowners who are going through a divorce can refinance to pay off their spouse and take ownership of the loan.

5. How can I consolidate my debt by refinancing?

Below are two ways to use your mortgage to consolidate debt:

Using Your Home Equity: The equity you have in your home can be used to address some of your debts. If you’ve paid $50,000 toward your $300,000 home, you can refinance to access that equity and use it to pay off debt, purchase a vacation home or make renovations to improve your property value.

The exact amount of equity you have in your home will depend on its value, which can fluctuate depending on the market. You can contact a Blue Water representative to see how much your home may currently be worth.

Cash-Out Refinancing: When you borrow more money than you owe on your current mortgage, you can receive the difference in cash. This is known as cash-out refinancing and it’s commonly used by homeowners who are going through a divorce or those who want to access cash to pay off debts.

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6. Why should I look into debt consolidation through refinancing?

In Connecticut specifically, there are three main benefits to debt consolidation through refinancing.

  • Compared to credit cards, mortgage interest rates are much lower. As of December 2018, the interest rate for a 30-year fixed mortgage is around 4.7% while the average credit card interest rate is about 16.7%.
  • Keeping up with bill due dates throughout the month can make it difficult to make a significant dent in any of your debts. With debt consolidation, you’ll only have one payment with one set interest rate.
  • Many homeowners end up saving some money every month by consolidating debt and refinancing. No matter how much your savings may be, it’s important to use it wisely! We recommend putting the money into an IRA or using it for renovations to increase the value of your property.

We know that everyone’s financial situation is unique, which is why it’s advised that you speak with an expert before making any decisions about refinancing. You’re welcome to contact our team and we’ll help you get a better visual of your home’s value, your debt and how you can improve your finances.

Roger is an owner and licensed Loan Officer at Blue Water Mortgage. He graduated from the University of New Hampshire’s Whittemore School of Business and has been a leader in the mortgage industry for over 20 years. Roger has personally originated over 2500 residential loans and is considered to be in the top 1% of NH Loan Officers by leading national lender United Wholesale Mortgage.

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