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Refinancing your home mortgage loan is a smart way to pay down your debt faster and save money at the same time. So is applying for a home equity loan. Either can be viable options for those whose debt has become unmanageable and who are looking to consolidate their debt into one loan with a more favorable interest rate. What's even better is that the interest paid on a home equity loan or mortgage refinance loan is tax deductible whereas the interest you pay on your credit cards is not.

There are some who caution against tapping into these sources of cash for debt elimination because the home is used as collateral. If for some reason the home equity loan or the refinanced mortgage loan cannot be repaid, the borrower's home can be at risk.

Determining your home's equity

Unfortunately, you can only tap into these sources of cash if you have equity in your home. How do you know if you have any equity? You start by determining your home's market value. From that, you deduct the amount owed on your mortgage. So if your home is worth $200,000 and you owe $180,000 on your mortgage, you have $20,000 worth of equity.

How your house helps reduce your debt

The benefit of a home equity loan or line of credit is that you use the money as you need it. Home equity loans are generally easier to get and they won't cost much, if anything, to obtain. With a home equity loan you are taking out a second loan which sometimes causes home equity loan rates to be higher to offset the higher risk.

When approved for a home equity loan or line of credit, you can use the money to pay off your individual credit card balances, bringing the balance due on each down to zero. Instead of having to pay multiple bills each month thereafter, you need only focus on repaying one: your home equity loan. Since home equity loan rates are typically much lower than those on a credit card, more of your monthly payment will go towards paying down the principle. As you pay down the principle on a home equity loan or line, that money becomes available again, should you need it.

Cash out refinancing works a bit differently. In this type of transaction, you are refinancing your home mortgage loan. You'll refinance at an amount that's more than is needed to pay off the principal due on your home. For example, if you still owe $180,000 on your home and you need $20,000 to repay your debt, you would refinance for $200,000. By doing so, you'll get a check for $20,000 at closing which you can then use to pay off your debt!

This is a very simplistic explanation of how home equity loans and home mortgage refinancing can help you eliminate your debt. If you think either option sounds like it might benefit your situation, why not sit down with a refinancing expert and discuss your options in detail!