Debunking the Myth about Credit Cards
I interact with a lot of clients that are considering paying off their credit cards through a refinance and frequently come across this common misconception:
MYTH: “If I wrap my credit card debt into my mortgage, it will take me longer to pay them off.”
I think many people believe that they are somehow stretching the credit payment over a greater period (often 30 years). This really isn’t the case. Let’s assume that you have an interest rate of around 17% on your credit cards and have a balance of $10,000. If you pay the minimum payment each month, it would take you roughly 39 years to pay it off. On the other hand, paying that same debt at the rate of 4% would only take you 152 months or roughly 12.5 years. So, it ends up being paid off over three times as fast by consolidating it with your mortgage.
The savings that you will see from paying off credit cards seems to far outstrip any benefit one might realize from keeping the two debts separated. In the end, I think that an individual is really just punishing themselves if they continue to make both payments separately.
While there are many other myths about credit cards, I thought I would tackle this one first, please feel free to comment if you have any questions regarding credit cards or if you have any experience with credit card consolidation. In the meantime, have a wonderful weekend everyone!
