Lendah Cautions Consumers to Avoid Dangerous Financial Trend of Moving Unsecured Debt into Secured Assets

Boston-based financial services company sees a growing number of people lured by lower rates that are refinancing mortgages to eliminate rising credit card debt

Lendah, a Boston-based financial services company, urged caution this new year as more and more consumers are making the mistake of turning towards their secured assets to pay off unsecured credit card debt.

“Americans have benefited from incredibly low mortgage rates over the past several years, and those rates are wonderful for homeownership or refinancing, especially in the case of first-time buyers,” said John Caron, Lendah co-founder. “There is a dangerous side to those attractive rates, and that is a person putting their secured assets at risk for credit card debt that’s gotten out of hand,” Caron added.

The Federal Reserve reported that between July and September, U.S. household debt climbed to a new record of $15.24 trillion, with an increase of 1.9%, or $286 billion, from the second quarter of the year. Equally as concerning, Federal Reserve data shows that credit card delinquencies – late payments of 90 days or more – are also up from the previous quarter.

Latest Fintech News: Penfed Credit Union Announces Record Annual Mortgage and Consumer Lending Volume for 2021

Credit card spending surged $17 billion dollars in the third quarter of 2021, and the number of credit inquiries within the past six months – an indicator of consumer credit demand –was at 122 million, a 1.3% increase from the previous quarter.

Refinancing puts a property’s equity or down payment on the line in exchange for a rate that is considerably lower than the interest rates found with credit cards, personal loans, or other expensive options.

However, there can be pitfalls in using these types of loans.

The monthly mortgage payment will go up with these loans, and if a borrower can’t make the payments, they risk default and foreclosure. While defaulting on your credit card or a personal loan may damage your credit, it is unlikely to cause a borrower to lose their home.

Latest Fintech News: ZuluTrade – World’s Largest Social Trading Platform Joins the Finvasia Group

Another potentially adverse and often underestimated element of this type of transaction is the closing costs or fees for the loan that can either be paid upfront or rolled into the loan.

“Depending on the fees accrued during these refinances, a borrower may end up paying interest on those fees for the life of the loan, and the value of that refinance to save the credit card debt could be greatly diminished over time,” said Caron. “Most importantly, moving this unsecured debt into secured debt does very little for a person’s overall financial situation if they continue poor spending habits and begin adding debt to their credit cards again.”

Those facing extreme credit debt should be paying off debt as quickly as possible. For those who pay only the minimums, they could end up paying two to three times more than the original borrowed amount