A cash-out refinance can help you consolidate debt and lower your mortgage payment. That doesn’t mean you can use that extra cash however you see fit. There are some limits as to what is prudent use of the money and what isn’t. To make the most of your refinance, avoid spending those extra funds on the following.
#1. A new car
The idea of paying for a new car with cash may sound exciting, yet is something you should definitely avoid. After all, you are not actually paying cash, but rather financing your new vehicle for the life of your mortgage-something that could be as long as 30 years. Do you really want to pay on an automobile that long? We didn’t think so.
#2. Boat, motorcycle or other vehicle
Buying a boat, motorcycle, RV, or other vehicle is akin to purchasing a new car, and should therefore be avoided for many of the same reasons. In fact, buying a vehicle for recreational purposes might actually be worse if you wind up not using it often. Let’s face it, blowing lots of money on something that may spend more time in storage than it does being used it not something you should aspire to.
#3. A dream vacation
Refinancing a mortgage is cause for celebration, and leaves many people considering a vacation. Even so, planning a getaway when you have a hefty sum of cash in your hands is never a wise decision. For many people, the desire for an exotic excursion complete with luxury accommodations and travel arrangements is too much to resist. Before you know it, you will have blown thousands of dollars, and have nothing to show for it but memories.
Going gambling with lots of cash is not ever a smart thing to do. It’s an especially bad practice immediately following a refinance. Your newfound sense of financial security might cause you to let your guard down and take unnecessary risks with your money. Don’t be fooled into thinking that you will somehow come into a windfall, as the odds of that happening are actually very, very low.
#5. Cosmetic Surgery
Sure, cosmetic procedure can help you look younger, but the sense of satisfaction you get might actually be very short lived. What started out as just a little nip-and-tuck might quickly get out of hand when you notice that sagging in other parts of your body are now more noticeable. Not only that, but the results of plastic surgery do not last forever. Maintaining your results can be expensive, and something you might not be able to afford once all of your cash is gone.
When it comes to a cash-out refinance, make the most of this opportunity and do not let your emotions get the best of you. A good rule of thumb is to use only use the proceeds in a manner that will produce long-term financial gains. Rather than spending the money frivolously, consider making investments or putting something into a college fund. Years from now, you will look back on this moment and be glad you did.