According to NerdWallet the typical household is carrying $15,762 in credit card debt, $27,141 in auto loans, and $48,172 in student loans. With so many people suffering from crippling debt, many are left asking if there is a way to simplify their financial situation. One popular San Diego way to pay off consumer debt is with a cash out-refinance. Depending on your current mortgage rate you could simultaneously lower your mortgage rate, consolidate your finances, and eliminate your credit card debt.

Let’s not ignore the lofty interest rates on credit cards that keep your debt higher. The national average is 13% for fixed-rate credit cards and 15.7% for variable-rate credit cards, both are considerably higher than the current mortgage rate of around 3.5%. Cashing out could save you thousands of dollars in interest rate fees.

So what exactly is a cash-out refinance? After you have been paying on your home for a while you gain equity. Equity is the difference between your mortgage balance and the home’s market value. When you cash-out refinance you raise your loan amount in exchange for some of that equity in cash. Lenders typically limit cash-out loan amounts to 80% (75% with better conventional financing); 85% for FHA; and 100% with VA, of your home’s equity. Cashing out can be a favorable way to get rid of your consumer debt and help simplify your financial situation.

Here is a sample scenario:

Let’s say you took out a 30-year fixed mortgage for $375,000 back in August of 2008 when the interest rate was 6.48. Today you are looking to refinance to consolidate your debt and lower your mortgage rate. You live in the lovely Lemon Grove, CA where the current mortgage rate rests around 3.5%.


Loan amount: $375,000

Loan program: 30-year fixed

Current mortgage rate: 6.48%

Current mortgage payment: $2,365.32

Refinance mortgage rate: 3.5%

New mortgage payment: 1,684

Difference: $684


If you make all of your payments on time then your current mortgage balance would be around $332,334. This means that you have roughly $42,666 in equity if the value remained the same.  Most likely, the value increased so you have even more equity.. Let’s say you want to use $20,000 of that to order to pay off your credit card debt. In that case you would cash out refinance. If you choose to you can also make your loan schedule shorter so you are not back at 30 years. Let’s say you keep it at 22 years (what you would be at if you didn’t refinance).

New mortgage balance: $352,334

Refinance mortgage rate: 3.5%

Current mortgage payment: $2,365.32

New mortgage payment: $1,915.57

Difference: $449.75

While there are costs associated with refinancing, they will surely be accounted for quickly with the money you are saving from paying less interest. With mortgage rates so low, now is a great opportunity to pay off your credit card debts and lower your interest rate and Greater Home Loans is your best bet; one broker – many lenders.