Should I pay off my debt with money from my savings or by refinancing my house?

I have two auto loans and some credit card debt that totals to about $29,000. I have $38,000 in my savings so I was curious if I should pay off my debt with that, which would leave me with a $9,000 nest egg.

Alternatively, should I refinance my house to pay off that debt? I bought my home in 2010 for $128,000 and currently owe $104,000. My house is approximately valued at $225,000 which leaves me a bit of equity. What would be the best choice?

Debt, Retirement Savings, Real Estate, Stocks
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2 weeks ago

I'm sure you're getting different answers on this. It really is a matter of personal preference. But here's my thinking...if you refinance your house, you're not really getting out of debt. You're just moving the debt from one pile to another. Your total monthly payments may drop some, but you'll still owe the same amount of money. Plus, you'll increase your mortgage payment for the next 15 to 30 years. If you total the difference in your mortgage payment, you may not save any money with the refi.

The down side of paying off the debt out of savings is you'll have less savings. But you'll also have more money every month due to the debt payoffs. If you commit to putting the money that would go toward debt payments back into savings every month, my guess is you'll rebuild your savings in no time at all. And you won't have increased the idebtedness (or risk) on your house in the process.

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