If you have built up equity in your home but are struggling under the pressure of mounting bills, a cash-out mortgage refinance may be a good solution. These types of loans allow borrowers to take a percentage of their home equity as a cash payment that can be used in any way they wish. Of course, the smartest financial planning is to use a cash-out refi for a long-term fiscal goal rather than a short-term project. In other words, using your home equity to buy new clothes or take a fancy vacation could be a decision you regret. Instead, consider these smart ways to use your loan to improve your credit score and position yourself for better financial success in the future.
Pay Off Credit Cards
When you’ve maxed out your high-interest credit cards, it may feel like it is impossible to improve your credit history and pay off your debt. But a cash-out refi is a savvy option because your credit score improves, and you may be able to write the mortgage interest off on your taxes. Plus, by consolidating your debt, you won’t have collection representatives calling (if you’re behind on payments) and adding to your everyday stress. Once you pay off your cards, cut them up and close the accounts so you won’t be tempted to use them again until you’re back on a solid financial footing.
Finish Your Student Loans
Years after graduating, you may still be paying off your student loans. On average, students have about $37,000 in loans, which can translate to hundreds of dollars each month in payments. Of course, the interest dramatically increases what you pay overall, so a refinance mortgage could reduce your overall payments on your educational investment. The long-term benefits could even mean an earlier retirement someday!
End IRS Debt
There’s no running from the government. When you owe money for taxes, it can feel overwhelming. However, the IRS often accepts what is known as an “offer in compromise.” This means they will settle your tax bill for less than what you owe, provided you can pay the amount as a full payment. This could potentially save thousands in penalties, taxes, and interest that would otherwise add up over time with a regular installment payment plan option. Using your refi cash-out for this settlement allows you to take control of your debt.
Kill Medical Bills
Feeling better? Beware of your mail: Medical bills for major emergencies and surgeries are one of the biggest reasons people file for bankruptcy protection. Even if you have health insurance, it may not be enough to cover all the bills that result from necessary medical treatment. Before your finances are crippled by medical bills, consider paying these bills with your cash-out. Again, it helps your credit, and you may even negotiate a lower bottom line with the hospital if you can pay in full.
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