Budgeting is a critical tool if you want to retire with no more mortgage or any other type of debts.

No More Mortgage on budgeting and consolidation.

There are many different strategies for eliminating debt. One method when you have a mortgage and multiple other debts is to use a new mortgage to consolidate other debts and free up cash flow to pay the entire debt down. It is often referred to as a mortgage consolidation loan.

Whatever your goal is you need a strategy and a place to start.  As a home owner, you may be able to get a consolidation loan if you qualify and start attacking your personal debts. You should know that "paying off" debts in a mortgage consolidation loan isn't paying the debts off.

You have simply relocated them to the mortgage and there are positives and negatives to doing this. We're going to look at those and then talk about how budgeting can be the life or death of this strategy.

Replacing the current first mortgage with a new first mortgage is the most likely road you will take if you go with this strategy. Or you could try to get a new second mortgage so you can leave the existing first mortgage in place if you need to. For instance, you may have a pre-payment penalty on the first and decide to look for a 2nd.

Let's look at some of the benefits of consolidating the debts in a new mortgage or refinance.

• You will improve your available cash flow giving you some budget relief and providing some money to work with. The new loan payment and the elimination of other personal debt payments (now rolled into the mortgage) will mean that you are paying less monthly than you did before. When you compare the new mortgage payment to the old payment and take into account the old credit card and debt payments you should be saving anywhere from a couple of hundred dollars a month to well over a thousand or more.

• An improvement in your personal tax liability. In most cases, the interest you'll pay on your mortgage gives you a tax write off that can be a great benefit and possibly free up some additional cash by adjusting your paycheck deductions. You will most likely not be able to write off any of your credit card personal debt interest. You can consult with your tax professional on the possibility to take the tax deductions.

• Your new loan payment means you have fewer debts to track and you'll be cutting fewer checks too. You rolled debts into the loan so you have fewer debts right now to keep track of.

• By paying off some of your debts, most specifically credit card debts you most likely will have a bounce higher on your credit score in a month or two after they are reported. Credit card debt makes up 30%-35% of your score. So an improvement to your revolving debt is an improvement to your score.

• You just gained the ability to pay down your debt faster with the improved cash flow. You need to continue to budget well and not spend more just because you have more cash on hand. You need to attack your debt with the extra money. Do you really want a new TV or do you want to pay off your debt faster and save enough money for the retirement you want and deserve. The money you spend on a new TV today could be worth several thousands or more in your retirement.This improvement in cash flow could help you knock your mortgage down and pay everything off in a fraction of the time. You could be debt free with no more mortgage payments and very bright future years sooner than you thought you could.

Let's look at some of the negatives of a mortgage consolidation loan.

• You are taking out a new mortgage loan that is bigger than the one you had before. The new loan will most likely have fees and charges too. The new payment needs to be something you are sure that you can handle financially. The new loan should have improved you monthly cash flow making things easier on you. But it's still bigger and it's starting over the 30 point from scratch. You'll pay it down in a fraction of the time if you stick to your plan.

• Fees for your new mortgage loan need to be kept in mind. Check on the loan costs and make sure there are no discrepancies. Take the fees into account and decide on whether the new loan still makes sense to move forward with. Make sure the new loan terms and payment meet your budget and goals before you sign.

• Your overall personal debt might initially increase through a consolidation loan. You could also find that some loans don't lower your payment enough to make it worth it. You should be freeing up enough surplus cash every month to power down your personal debt or the consolidation loan is not the right choice for you.

• You have to be financially disciplined or you could end up worse off than when you started. You don't want to clear up credit card and other debts by rolling them into the mortgage and then building up the credit card debt again. It's happened to thousands if not tens of thousands of other people. Their goal was to have no more mortgage or other debts. Instead they ended up with even more debt than they started with.

A few more things you need to know:

• Over the last few years we have seen far too many home owners that meant well but ended up worse than they were before getting a consolidation loan. At one point they were arguably contributing as much if not additional to the down turn in the economy than anything else. It was common to see home owners get mortgage loans for debt consolidation and then build up their personal debt all over again. Had they been able to show some financial discipline their outcome could have been much different.How can you expect to get ahead and stay ahead if you continue to build up debt? You can't. Moving your debt around has given you additional cash flow to use to your benefit. Too many have then gone out and used the new cash flow to build up more personal debt.

• Here is where I lose some friends in the mortgage business. The deal you get on your loan is usually based on the commission your loan officer or mortgage originator gets paid. The higher your rate the higher their commission unless they are charging you an origination fee instead. They could get paid on both the rate and an origination fee on the loan. Read the initial paperwork on the loan and then check the final documents before signing to make sure everything is in order. You may be negotiating on both your rate and the loan officer's commission which are going opposite ways.

• Very important!!! It's common to see the loan choice determined by the amount of cash out and debt that can be paid down. Yes, it is appealing to get cash out and in your pocket after paying off the debts, but that doesn't mean it is a good strategy as you are paying interest on that money. Don't waste any of that money on things you want as it will end up costing you extra in the long run. Your goal is to become debt free sooner. Be smart.

• Just as important!!! You need to be aware of any pre-payment penalties that are on your current mortgage loan. If you have a pre-payment penalty you might have to pay up to several thousand dollars in a fee for paying off the existing loan too soon. This is usually in place if you got a good rate the last time you refinanced and agreed to a 1 to 5 year period where you would not refinance again. That is build in some protection of profit for the lender in exchange for lowering your rate to save you money. A good deal should always be a two way street or it's not a good deal for everyone involved.So your last mortgage could have come with a pre-payment penalty in exchange for a lower rate that you did not think you would have to worry about or may not even remember. Unfortunately, a lot of people don't know they have a penalty for the prepayment on their current mortgage loan. Go through the current mortgage loan documents that you signed to look and see if you have a penalty. Check on the period you have to wait and amount you have to pay if you pay it off early.

Make sure you are working with someone on your mortgage consolidation loan that has your finances and your future put first and foremost. You really want someone with a financial planning approach to help you. The conversations need to be about your future and how to get to your goals. Start your search by talking to friends or family and seeing who did a good job for them and went beyond the typical service.

Then you should check out who you want to work with at the BBB website to see what their rating looks like. The BBB (Better Business Bureau) is a good place to start. It takes a lot of work to keep a good rating there. We should know. See the No More Mortgage BBB A+ rating here.

You have some good information so far but consider the following too.

• Getting a mortgage loan to consolidate debt does not really pay anything off. The debt was just moved to the mortgage where it became part of a long term debt. You are increasing your risk of losing your home if you become unemployed or disabled. It could end up being the wisest move you've ever made financially if you stay disciplined and use the additional cash flow correctly. This could be the worst move you could make if you don't have the ability to follow your plan and end up adding new debt. You'll never have no more mortgage payments that way.

• You need to be able to make the new mortgage payment which will be bigger than the the old one. It should be less than you were paying on your total debt before but you might end up consuming the additional cash flow in your monthly budget and then not paying additional to get ahead of your personal debt. Budgeting and financial discipline are key here.

It is possible that you have already gone through one of these "refinance to pay off personal debt" cycles in the past and it wasn't successful for you. If you have you should consider a debt elimination strategy that incorporates a program you can use to stay on track. You're working towards becoming personal debt free and retiring with no moremortgage or other payments. You can make this happen with financial discipline and good strategy.

Now, don't forget to use one the most important and free tools that you have available to you.

Learning to budget. Become a budgeting master. Be aware of your budget at all times. Sounds real exciting doesn't it? It works though. Budgeting is a tool that can help you tame your spending and start making headway on your financial goals. It really works. When it doesn't, it's because you are doing what you're supposed to.

Any financial strategy is doomed to fail if you don't control your spending. Some of the easiest ways to do that are to track what you are spending and plan out what you need to spend. Once you start doing that you are going to be well on your way to succeeding in your financial goals.

When you learn to budget well and stick to your budget you will experience significant change in your finances and headway towards controlling your personal debt. You will be able to plan better and not have to rely on credit cards to bail yourself out of unexpected expenses. Get on track to having no additional personal debt and no more mortgage payments.

Your friends at No More Mortgage on Budgeting.

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