If you have consumer debt -- balances on high-interest credit cards, auto loans or even payday loans -- you may be wondering whether you can use a home mortgage to consolidate your debt and help you be debt-free faster.

Before making any decision about how to handle your debt, first get a handle on how much you owe. No matter whether you plan to work out your own debt relief plan, refinance your home to pay off debt, work with a credit counselor or apply for a debt consolidation loan, you must have a complete list of all your creditors. Next to each creditor, list your current balance, your minimum monthly payment and the interest rate you pay.

If your goal is to improve your credit score as well as to reduce your credit card debt, add a column that shows how much of your available credit you are using for each credit line. To improve your score, you need to use less than 50 percent (and some financial experts recommend less than 30 percent or even -- ideally! -- less than 10 percent) of your credit limit on each credit card.

Consolidating debt with your mortgage

If you are a homeowner with sufficient equity, you may be able to qualify for a home refinance and wrap your high interest credit card debt into your mortgage payment.

In general, debt consolidation is the idea that you wrap all of their debt into one lump sum, with a monthly payment that may be less than the combined payments you are currently making on those loans separately. If you consolidate your debt with a mortgage -- either a refinanced mortgage or a home equity loan -- the fact that your debt is secured by your home can mean a lower interest rate.

Debt consolidation risks

Before jumping on the chance to reduce your monthly debt payments, know the risks. A debt consolidation loan can create more problems than it solves unless used wisely.

  • Remember that a home refinance for debt consolidation means that all your debt is tied to your property. If you cannot pay the mortgage, you could lose your home.
  • Consolidating your debt into one loan means that your credit cards are now down to a zero balance. If you lack the discipline to cut up the cards or stop using them, you can easily increase your credit card debt load beyond your ability to repay. But don't close the paid-off credit card accounts, because doing so will reduce your available credit and lower your credit score. Instead, find a way to stop using them.
  • Make sure you can afford the payments on the new debt consolidation loan.

Getting out of debt can be the best financial goal you ever achieve. Find out if a debt consolidation mortgage is the right method for your debt relief plan.

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