Refinancing or consolidating debt
If you're trying to pay off high-interest debt faster, refinancing or consolidating may be a good option. Not only could you secure a lower interest rate, but you could also have a lower monthly payment and get extra cash. For more information on whether refinancing or consolidating debt would help you, read below.
When you refinance, you take out a new loan to pay off the remaining balance of your old one (and possibly end up with extra money). This allows you to change your interest rate and terms. Refinancing is an option offered for many types of loans, especially mortgages.
Consolidation is a form of refinancing, but its purpose is to pay off more than one debt balance with a new loan. In other words, it's trading multiple monthly payments for one. This can be a good choice for tackling credit card and other loan debts.
When to consider refinancing or consolidating:
• Your credit score is good enough to improve your approval odds and secure a lower interest rate
• You can replace a variable interest rate with a fixed rate and get lower payments
• You want to pay off debt faster and free up more money
• You're able to make payments on a new loan
Research before deciding
Before refinancing or consolidating, you have to do some research on the lenders that offer these choices. It's also important to look into the terms for your new loan and compare it to your current loan(s). Even if you get a lower interest rate, you may have an extended loan term, have to pay an origination fee on your new loan or be hit with a prepayment penalty for paying off your previous loan early. Remember, a longer term could provide short-term financial relief, but you may be paying more on the loan overall. If your debt is significant, then you may need to look into debt resolution or other methods. But if you can pay your current loan off in a short time, such as six months to a year, it may not be worth it to refinance or consolidate.
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