Dear Dr. Don, 

I want to refinance my mortgage, but the balance is small enough that interest rate quotes I'm getting are higher than if I had a higher balance. I feel I have a lot of credit card debt, but I still have an excellent credit score.

Would there be any benefit to taking a cash-out refinance at a higher mortgage amount to pay off credit card debt? Would the mortgage interest rate be lower? Does all of that affect equity in my house?

Thanks, 

-Rebecca Restructures

Dear Rebecca, 

A good credit score doesn't mean your credit card balances aren't excessive, just that you're able to stay current on them. High balances will reduce your credit score, but they won't ruin it. The amounts-owed category accounts for about 30% of your credit score. Your payment history is worth about 35%.

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You're carrying these balances because you're not living within your means. Restructuring your debt, while providing some relief in your monthly household budget, doesn't change spending habits. You wind up financing yesterday's consumption with tomorrow's paycheck for the next several decades.

A cash-out refinancing to pay down credit card debt can make financial sense, but it's not the answer if you run up those balances again. There are a limited number of times you can tap the equity in your home to restructure household debt.

Minimum loan amounts vary by lender. It's hard to turn a lender's head for a mortgage loan below $50,000. The smaller the loan, the more likely it is that the interest rate is higher than for a larger loan amount.

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