Should You Roll Your Consumer Debt Into Your Mortgage?

Big question: Should you use the equity in your home to pay off your consumer debt?

Quick answer: Maybe.

Long answer: Let's do some analysis...whether or not it makes sense to use your mortgage to pay your consumer debt depends on:

  • the amount you owe in consumer debt 

If you only owe a small amount, then there's no need and no point in rolling it into your mortgage. Even if the interest on your mortgage is very low and the interest on your consumer debt is very high, paying the debt over 20 to 30 years would result in paying a lot more in interest in the long run.

  • the amount of equity you have in your home 

If using the equity in your home would only pay off a very small portion of the debt, then there's probably no point in doing it. You wouldn't achieve the desired effects of freeing up money in your budget or paying down your debt.

  • the % of interest being charged on your debt 

I consider anything below 10% to be a low amount to pay on consumer debt and anything above 10% to be high. If all your consumer debt is on vehicles that charge below 10% then there may be no huge benefit to using the equity in your home to pay it down. Chances are it's possible to pay it down in a reasonable time and stretching it out over 20 to 30 years would result in more coming out of your pocket in the log run.

  • how long it would take you to pay your debt down if you just keep paying it as you are 

If you can afford to pay the debt down in as little as 2 to 4 years then there's no need to stretch it out over 20 to 30 years. Do the math though, you may be surprised at how long it will take to pay the debt down to $0. You can use the calculator here to see how long it will take you to pay it down and how much interest you'll pay. 

  • how much cash you would free up every month 

You can use the calculator here to see how much more your mortgage payments would be. Compare your old mortgage payments + the amounts you were paying towards your debt to the new mortgage payments. Would you free up a significant amount of cash each month? 

  • how tight your budget is 

Are you currently accumulating more debt each month simply because of the payments to the debt? In other words, you just can't afford the amount of debt you currently have? If that's the case, then your equity may be your saving grace. As long as you can afford the new mortgage payments and you do not charge one more dollar to a credit card or line of credit, using your mortgage to pay the debt may be a feasible solution.

  • your ability to stay debt-free 

If you use up the equity in your home to pay down debt, but are not disciplined enough to stop accumulating more debt, then there is NO POINT in using your equity to help get rid of the debt. If you don't stop accumulating new consumer debt then all that will happen is you will push yourself closer to a desperate situation where credit counselling and possibly bankruptcy will be your only options.

  • what you'll do with the "extra" money you now have every month 

If all the stars align and this is a feasible way to get rid of your consumer debt, make sure that you use the "extra" money you now have for good instead of evil. My suggestion? Put a portion aside for emergencies, use a portion of it to start a "fun" fund, and invest the rest. Do this every month and the debt should stay gone for good!

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