Revolving Debt and Cash Out Refinance Loans

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cash out refinance loanYou can use cash out refinance loans to cover a variety of expenses or home renovations, but you may also want to consider using a loan to pay down your revolving debt. To help you decide if this option is right for you, here’s a closer look at how the process works.


What Is Revolving Debt?

Revolving debt refers to money that you borrow, repay, and borrow again. The classic example is credit cards. You can spend up to your limit, repay the funds, and respend the money. However, lines of credit also fall into this category. These loans are called revolving because the debt just keeps cycling.


Paying Down Revolving Debt

Unfortunately, it can be hard to pay off revolving debt. When you pay off a credit card, you know that you have the credit line open and available to use. As a result, you are likely to use the card again when you need supplies for the holidays, clothing for the new school year, or other expenses. Because these loans are so easy to pay and take out again, it can be hard to pay down these debts.

At the same time, a lot of revolving debt — credit cards in particular —  has high-interest rates. When loans have high-interest rates, the minimum payment may barely cover the interest, and by extension, your payments only cover a small amount of the principal balance. Due to these factors, it can take decades to pay off revolving debt.


Should You Consider Cash Out Refinance Loans?

With cash-out refinance loans, you take equity out of your home and you use that to pay off all your revolving debt. Then, you pay off the refinance loan. Here are some signs you may want to take this approach:

  • You have equity in your home. Note that equity is value in your home. For example, if your home is worth $250,000 and you only owe $100,000, you have $150,000 in equity.
  • You don’t need that equity for other expenses such as home repairs or college tuition.
  • The interest rate on the cash out refinance loan is lower than the interest rate on your revolving debt.
  • The monthly payment on your cash out refinance loan is lower than the current monthly payment on your revolving debt.
  • A lender shows you how long it’s going to pay off the cash out refinance loan compared to the revolving debt.
  • You want to pay an installment loan, instead of revolving debt. With installment loans, you pay a set amount until the loan is completely paid off.
  • You are confident about your ability to not use your credit cards so that you don’t run up any new revolving debt while you pay off your cash out refinance loans.


Being in debt can be difficult, and while car loans and mortgages are often essential, most revolving debt is not essential, and due to high-interest rates, it can be financially debilitating. Ready to learn more about cash out finance loans and the potential of your home’s equity? Then, contact us today at BrightPath.

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