There are two ways to overcome credit card debt. The first is refinancing your home, and using a new mortgage as a debt consolidation loan. The second is to modify your behavior and pay off your credit card debt slowly.

People who find themselves in heavy credit card debt tend to like things that come easy. They've racked up countless dollars in debt through bypassing a disciplined savings plan. The material goods and fun times have come easy-but unfortunately, so has the long-term pain. Straddled with debt, overspenders find that they have a low credit score and high monthly credit card payments.

These people often opt for refinancing. With one debt consolidation refinance, they can wipe those credit card balances clean. However, the easy way out is not always the smartest financial move, especially over the long haul.

Refinancing-short-term pleasure, long-term pain

If you're carrying heavy debt and can't make your minimum monthly payments, a debt consolidation loan might make sense. Lumping all your credit card balances into one home mortgage with a lower interest rate will lower your overall monthly payments. As an added bonus, the interest on a home mortgage is tax deductible.

However, those lower monthly payments are not solely the result of a better rate. Your refinance generally includes an extended repayment term. It will decrease your monthly payments, but you'll pay more in long-term interest costs. Some people are so cash-strapped, that this is their only alternative. For others, a change in spending behavior may be a more prudent solution.

Changed behavior improves financing

Refinancing to a debt consolidation loan is a solution that really doesn't address the core problem: Living beyond your means. If you've taken the bait offered by credit card companies and shelled out money like there's no tomorrow, wiping your credit card balances clean won't change your habits today. Instead, you'll probably repeat your past mistakes, and run up even more debt in the future. Unfortunately, you won't have the debt consolidation option to bail you out, because you've probably tapped all your home equity with your first refinance.

A better long-term option involves changing your money management habits. Instead of caving in to impulse buys, start budgeting your money and living within your means. Analyze your past expenditures, and find out where you can spend less and save more. As you set up your budget, allocate a certain amount to paying off your credit cards on a monthly basis. Start by paying off the plastic with the highest interest rate first.

The term "easy come, easy go" doesn't apply to debt. It's easy to acquire, thanks to credit cards, but it's not so easy to make it go away. If at all possible, don't take the easy way out by choosing a debt consolidation refinance. Try to pay off your debts with a disciplined budget plan. You've got a long, hard road ahead of you, but the debt-free destination will be worth the journey.

Published on April 15, 2008