Posted on: August 7, 2018
Maybe you’ve heard about paying off credit card debt with a VA cash-out refinance, or maybe you know someone who has done it before. Maybe you never even knew that this was possible.
With credit card debt rising in across the nation, it is becoming more common to see people getting cash-out refinances on their home to pay off credit card debt. The appeal is obvious, and if done responsibly, veterans can pay off their credit card debt while saving money on their home.
For veterans, the best option is likely a VA cash-out refinance, one of two refinance options offered by the VA.
In fact, VA cash-out refinance are the most popular refinance option offered by the VA, outnumbering the total number of IRRRL refis nearly 2:1.
Why is the program so popular? One reason is that veterans can get lower rates, potentially saving them money.
Another is that the cash from the refinance can be used on anything. Veterans use this cash for all sorts of reasons, from funding a remodel to buying a new car.
But one trend that has become popular is using the cash to pay off credit card debt.
So, is it worth it for veterans to pay off credit card debt with a cash-out refinance? That depends on their personal situation. Here are some reasons why veterans should or should not consider this approach.
For eligible veterans, a VA cash-out refinance is likely going to be the best cash-out refinance option available. Here are some of the reasons veterans use this refinance to pay off credit card debt:
Instead of paying different interest rates for different types of loans or debt, it’s much easier for most people to track their finances if all their debt is one place.
Debt consolidation can save some veterans a lot of money. If the new rate on the VA cash-out refinance is lower than the interest and rate on the credit card, then the savings are clear. You can essentially have the same amount of money owed while paying much less on monthly payments – and this time, you’re only paying for your house.
Unlike the IRRRL, veterans that purchased their home with a different mortgage program, such as FHA or conventional, are still able to refinance through the VA.
On top of freeing up cash to pay off any debt, this refinance can save homeowners money. The VA doesn’t require any type of mortgage insurance regardless of how much equity the homeowner has. Using this refinance can wipe out any of those insurance payments for the duration of the mortgage.
Credit card debt can cause some damage to credit scores. When the debt is paid off, the amount of usable credit on the card increases. This credit utilization is an important part of calculating credit scores, and as it drops, credit scores tend to increase.
Yes, you could potentially lower your monthly payments with a VA cash-out refi, regardless of if you have credit card debt or not. Mortgage rates have changed a lot over the last 10-20 years, and there’s a chance that rates have dropped since you purchased your home.
Each veteran has a different financial situation, and for some a refinance isn’t the best option at this time. Here are some reasons that veterans might want to put off a refinance:
While many veterans save money through their VA cash-out refinance, they’ll still have to pay for the loan through closing costs. This is standard with every type of mortgage and refinance.
Closing costs can easily be offset with long-term savings on the loan, but homeowners will still need to come up with money to pay the costs at closing.
Depending on when you first purchased a home, there is a chance that current rates are higher than those you currently have. This would mean paying more on a monthly basis.
The best way to avoid this is to make sure that your mortgage rate isn’t jumping before you accept the refinance.
Curious if a VA cash-out refinance is the best option for you? Eligible veterans benefit by having access, but every situation is different.
The best way to determine if you should get this refinance is to check what rates are currently available. If today’s rates are ideal for your situation, it could mean big savings while erasing credit card debt.