The Math of Consolidation
Interest rates don't tell the whole story. The "effective interest rate" of your combined debt is what matters. Let's look at the numbers.
The Short Answer
If you have $50,000 in credit card debt at 24%, you are paying $1,200/mo in interest alone. By rolling that into a mortgage at 7%, your interest cost drops to $290/mo. That is $910/mo in pure savings.
The Real Problem
The "30-Year" Trap. People say "don't turn a 5-year credit card debt into a 30-year mortgage." But if you take that $910/mo in savings and apply it back to your mortgage principal, you'll pay your home off 10 years early.
A Real-World Example
Before Consolidation
- Mortgage ($300k @ 4%): $1,432/mo
- Credit Cards ($40k @ 22%): $1,200/mo
- Total Monthly: $2,632/mo
After Consolidation
- New Mortgage ($345k @ 6.5%): $2,180/mo
- Credit Card Payment: $0/mo
- Total Monthly: $2,180/mo
Monthly Savings: $452
Consolidation Decision Framework
Consolidation is the right move if:
- Your total monthly debt payments are more than 45% of your gross income.
- You are only making "minimum payments" on your credit cards.
- You have at least 20% equity in your home.
- You have a plan to NOT run up the credit cards again.