Making the decision to do something about consumer debt isn’t easy. There are plenty of options and opportunities. The first task should be to write down all debt obligations, including each credit card and loan. Write down the balance owed, the minimum payment, the name of the creditor, and the interest rate.
Once everything is written down, the next task is to make a plan to pay off the debt as soon as possible. For pretty much any kind of debt, one of the best ways to save money during repayment is to get a lower interest rate – or debt refinancing.
Debt refinancing often involves paying off debt with a loan or another credit card. It can be seen as a transition to debt that comes with a lower interest rate. Here are a couple examples: moving all credit card balances to a lower-interest credit card, consolidating credit card debt with a personal loan, or using home equity to pay off multiple debts.
All of these can lead to a lower interest rate. However, these options aren’t always the best
The Interest Rate Conundrum
It can be a good idea to refinance debt when market interest rates are low. Additionally, it is not a good idea at all if the market rate is high. The whole point is to get a lower rate.
There are various different forms of debt that can be refinanced. Here are two simple examples.
Notably, a student loan can be refinanced through a private lender. This just replaces one or more student loans with a new loan with different repayment terms and conditions. Underwriting criteria can be strict, but it is one of the most effective options to saving money for a qualified applicant.
Credit card balances can be refinanced in a couple of different ways. Consumers could take advantage of a balance transfer credit card which could lead to zero percent interest for a certain time. You would need solid credit to qualify for a new credit card, and you would be required to eat any transfer fees. Alternately, a personal loan could be used to consolidate and essentially refinance credit card debt.
Benefits of Refinancing Debt
To ensure that debt refinancing is the right decision, it is good to take a look at the advantages. Some of those advantages include:
- The debtor retains ownership of any collateral that was used to secure the debt.
- Monthly payments can be reduced.
- Interest rates can be reduced.
- The overall cost of the debt can be reduced.
- Repayment terms can be shortened or lengthened for convenience.
- The reduction in debt can have a positive impact on credit.
Naturally, benefits will vary between individuals. Everyone makes the decision to refinance debt for personal financial reasons. What may benefit one person may not benefit the other.
Things to Keep in Mind
The purpose of refinancing is to pay off debt more easily while saving money. You need to keep this in mind. If going through the process can lead to a lower interest rate and financially in good shape, then you’ll be in a good place after refinancing debt.