Debt Consolidation: When Does It Make Sense?

Carrying multiple high-interest debts—credit cards, car loans, lines of credit—can feel overwhelming. Rolling them into your mortgage could dramatically reduce your monthly payments and simplify your finances, but it's not right for everyone. Here's how to decide if consolidation makes sense for you.

What Is Debt Consolidation?

Debt consolidation means combining multiple debts into a single, lower-interest payment. When done through your mortgage, you leverage your home's equity to pay off those debts.

The result: one payment instead of many, often at a much lower interest rate.

The Math That Makes It Work

Here's a typical scenario:

By consolidating into your mortgage at 5%:

• New monthly payment on $43,000: ~$250
• Monthly savings: $940

That's over $11,000 per year back in your pocket.

When Consolidation Makes Sense

Debt consolidation typically works well when:

• ✅ Your home has sufficient equity (at least 20% remaining after consolidation)
• ✅ Your total interest savings outweigh refinancing costs
• ✅ You're committed to not accumulating new debt
• ✅ Your credit score qualifies you for good mortgage rates

Find Out If You Qualify

Curious how much you could save? Request a free consolidation analysis and we'll show you exactly what's possible with your equity.

When It Doesn't Make Sense

Be cautious if:

• ❌ You have minimal home equity
• ❌ Refinancing costs exceed your savings
• ❌ You might run up new debt on cleared credit cards
• ❌ You're close to paying off your mortgage

Risks to Consider

Extended Repayment Period:
You're spreading short-term debt over 25+ years. Without discipline, you pay more total interest.

Your Home as Collateral:
Unsecured debt becomes secured against your home. If you default, you risk losing it.

The Discipline Factor:
Consolidation only works if you don't rack up new debt. Consider closing unused credit cards.

The Refinancing Process

1. Assessment – Calculate equity and potential savings
2. Application – Submit documents, get appraisal
3. Approval – Review new mortgage terms
4. Closing – Sign documents, receive funds
5. Debt Payoff – Use proceeds to clear existing debts

Learn about the costs involved in our refinancing guide.

FAQ

Q: Will consolidating hurt my credit score?
A: Initially, the new mortgage application creates a hard inquiry. However, paying off credit cards and reducing utilization typically improves your score within months.

Q: Can I consolidate if I have bad credit?
A: Yes, but at higher rates. Private lenders offer consolidation options for those with credit challenges.

Q: What's the minimum equity needed?
A: Most lenders require you maintain at least 20% equity after consolidation. Some alternative lenders accept less.

Q: Should I close my credit cards after paying them off?
A: Not necessarily—closing cards reduces available credit and can hurt your score. Just use them sparingly.

What's Next

Calculate your potential savings with a free, no-obligation analysis. We'll review your debts, equity, and show you exactly how much consolidation could save you monthly.