5 Debts to Consider Refinancing Before Year End

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debt-1500774_640While one tradition is to wait until the January 1st to make lifestyle changes in the form of a “New Year’s Resolution,” a better approach might be to start making those changes in the closing weeks of the current year instead.  There is that mental hurdle to leap over. For instance, December is normally seen as the closing of a chapter while January is seen as a time to get a fresh start.

One financial action to consider now, instead of the first week of January, is refinancing your debt. What kind of debt can be refinanced? All sorts of debt can be refinanced, though the exact terminology may differ. Here are several ways to tackle different forms of debt through “refinancing.”

Credit Cards

Without fail, the busiest time for credit counselors is the opening months of each year.  This is because many families spend a lot of money during the holiday season while buying gifts and traveling to visit family.  For households with a lot of credit card debt, the holiday season can be the “straw that breaks the camel’s back.”  Approximately half of all U.S. credit cards currently have a late balance of at least one month which explains why U.S. credit card debt is a leading form of consumer debt.

One option is to transfer the balance to a 0% interest credit card that will allow you to make payments on any current debt for the 12 to 18-month introductory period interest-free, minus the transfer fee.  After that, the remaining balance is charged an interest rate currently hovering near the national average of 20%. While this is technically not a “refinancing” action, it more or less alters interest rates and makes the debt more manageable. While this can be a good “second chance” for many people, opening another credit card is simply an invitation to spend more money and incur more debt.

Instead, a better option might be pursuing a personal loan for debt consolidation.  By taking out a personal loan, you can consolidate multiple credit card debts into one lump sum which simplifies the repayment process considerably. If you are creditworthy enough, then you can actually pay this debt with a lower overall interest rate compared to multiple credit card interest rates.

Student Loans

Long story short, student loans are a problem for a lot of recent graduates as 60% of grads leave school indebted each year. While student loan interest rates are cheaper than most mortgages and credit cards, it is still possible to be offered a lower interest rate from refinancing student loans. In many cases, this is an ideal move that offers multiple benefits in addition to lower interest such as flexible repayments and payment simplification.  The lowest variable interest rates currently start at 2.13% while fixed interest rates start at 3.5%.  These new interest rates often lead to thousands saved on interest overall which is one of the main incentives for choosing to refinance student loans. For reference, both federal and private student loans will be considered for consolidation and refinancing.

Mortgages

Another popular loan to refinance is a home mortgage loan.  Several factors might influence you to consider refinancing your mortgage including appreciating home values, an increase in your salary, or several years of payments has reduced the total size of your outstanding mortgage principal has allowed you to qualify for a lower interest rate.  You might have to renegotiate your loan from a 30-year term to a 15-year repayment term to secure the lower interest rate.  Monthly payments will be noticeably higher with a 15-year loan compared to a 30-year mortgage as you are paying off the loan in half the time, but, you will save thousands of dollars in interest.  You will want to factor in any refinance fees charged by the lender and a mortgage refinance calculator can help you visualize just how much money you can save!

Auto Loans

Many people probably do not think about refinancing a car loan since they have one of the shortest repayment terms and lowest interest rates on all financial loans.  Sometimes times it makes sense to seek car loan refinancing if current auto loan rates have dropped or if your credit score has noticeably improved. A few points difference in interest rates can cause a monthly payment to vary by $10 to $20 for most loans. While small, money can still be saved.

Medical Debt

Hopefully, you are healthy, but occasionally, bad things happen to good people. This means there will be medical expenses. Medical debt is a leading reason for personal bankruptcies.  FICO’s most recent credit score version, FICO Score 9, is now beginning to factor medical debt collections records into credit score calculations.  Many lenders and businesses are still using older FICO versions, but, this addition is helping show the upcoming financial trends.  Most people might charge medical debt to their credit cards with an average interest rate of 20%.  It is possible to refinance medical debt with balances as low as $5,000 with an interest rate of 5.99%, although most rates can range approximately from 7% to 15% with a maximum repayment rate of 84 months.

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