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A Homeowner’s Guide to Debt Consolidation in MA

If you’re dealing with debt, you’re certainly not alone. In Massachusetts, the average amount of credit card debt is $6,277 and the average amount of student loan debt is $31,563. When you consider that these figures don’t include car loans, mortgages and the cost of living, it’s easy to understand why debt consolidation is a popular option among homeowners in the Bay State.

How to Consolidate Your Debt

Keeping up with monthly payments that all have different interest rates, due dates and late fees can be incredibly difficult, especially if it feels like you’re not even making a dent in the amount of money you owe.

Because of this, many homeowners in Massachusetts look into debt consolidation, which is the process of transferring all of your debt under one loan. In this case, homeowners would transfer their loans into their mortgage so that they only have one payment, one interest rate and one monthly due date.

If you’re a homeowner with enough equity in Massachusetts, you may be able to explore your refinancing options to tackle some of your other debts. Here’s how:

With Equity
If you have $50,000 in home equity, you may be able to refinance so you can access that money. Certain areas of the county are currently considered to be a purchase market, which means home values are on the rise. This also means that you may have more equity in your home than you realize. You can then use the money to pay off debt, renovate your home to increase its value even more or to put toward a vacation home.

Cash-Out Refinancing
With cash-out refinancing, you borrow more money than you owe on your mortgage and receive the difference in cash. Here’s an example of how it works:

Roger’s monthly mortgage payment in Newburyport, MA, is $2,500. He also has $15,000 in credit card and personal loan debt that requires him to pay a minimum of $750 a month.

If he keeps on this track, Roger will be paying off his debt until well after he retires. Refinancing and increasing the loan amount by $15,000 will let him pay off his credit card and personal loan debt, eliminating that $750 a month responsibility. Instead, his debt will be combined with his home loan and his monthly mortgage payment will only increase about $100. That’s $650 in savings each month!

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Who Should Consider Refinancing for Debt Consolidation?

Debt consolidation through refinancing won’t be the right step for everyone, but the following types of homeowners may be able to benefit:

If You Have Equity
The equity in your home is incredibly valuable when it comes to debt consolidation — you’ll just need to have a certain amount available to qualify for refinancing. This is why debt consolidation through refinancing is best suited for homeowners with a few years of payments under their belts.

If You’re Going Through Divorce
As if divorce wasn’t hard enough, the question of what to do with your home becomes an added concern. Refinancing your mortgage is one of the best ways both parties can be happy. If your home is worth $250,000 and you owe $150,000, you and your spouse share $100,000 in equity. If you want to keep the house, you’ll need to buy out your spouse’s share, which is $50,000. You can do this by refinancing with a $200,000 loan that’s only in your name. You can then use the extra $50,000 in the loan to pay your spouse.

If You Have High-Interest Debts
The exact interest rates attributed to your debt will depend on your credit score and the type of loans. Because there is no collateral, credit cards and personal loans have much higher interest rates than car loans and mortgages. If your debt is mostly high-interest and you have equity in your home, it may be worth it to explore your refinancing options.

Why You Should Consider Debt Consolidation

For Massachusetts homeowners, debt consolidation offers many benefits, including:

  • Possible Savings
    If you’re in a similar situation as Roger, refinancing can help you save a substantial amount of money. You can use this money to purchase life insurance, increase the value of your home through renovations or put it into an IRA.
  • A Single Monthly Payment
    By rolling all of your debts into one monthly payment, you no longer need to worry about different payments with different due dates throughout the month. You’ll only have a single payment with one due date and one interest rate.
  • Lower Interest Rates
    Since your home acts as collateral, interest rates on mortgages are much lower than on credit cards or personal loans. As of publishing this article, the average rate for a 30-year fixed rate mortgage is around 4.7% while the average credit card interest rate is 16.7%.

We understand that everyone’s financial situation is different. If you’d like to learn more about your refinancing options and how to consolidate your debt, please contact our team! We can help you understand your home’s value and how it can help you improve your finances.

Roger Odoardi

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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