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Credit card refinancing vs debt consolidation


credit card refinancing vs debt consolidation

You could also negotiate with your credit card companies to secure lower interest rates or consolidate your debt with a balance transfer. Read more about. You are consolidating your many debts into one, by refinancing with a new loan Debt consolidation can help you consolidate credit cards. Most people who have multiple credit cards with significant outstanding balances, seek debt consolidation loans to consolidate their credit card debt and.

Credit card refinancing vs debt consolidation -

When you&#;ve decided it&#;s time to pay off your consumer debt once and for all, planning is key. It&#;s a smart idea to start by writing down all of your debt obligations, including each loan or credit card balance, who it&#;s payable to, the minimum payment and the current interest rate.

From there you can move on to making a plan to get your debt paid off as soon as possible. Among the options to help speed up debt repayment are debt consolidation and debt refinance.

What&#;s the difference between the two? Is one better than the other?  Here&#;s what you need to know before you agree to consolidate or refinance your credit card or other consumer debt.

Read more: 4 easy ways people with limited or low income can save for retirement

What is debt refinancing?

Debt refinancing involves moving your debt to a lower interest rate vehicle, either by transferring credit card balances to a credit card with a lower interest rate, transferring debt to a home equity loan product or transferring debt to a lending company.

With debt refinancing, the goal is to lower the overall interest rate that you are paying. For instance, if you have credit card balances with interest rates in the 15% to 20% range, you could refinance those balances to a lending company such as Sofi, Prosper or Lending Club and get a lower rate, typically between 6% and 12% depending on your credit history.

Whichever refinancing option you choose in order to lower the interest rates you are paying on consumer debt, it&#;s important to look at the fine print so that you clearly understand all fees, closing costs and interest rate rules associated with the new loan option you are considering. It&#;s wise not to agree to any type of refinance loan until you understand exactly what you are getting.

What is debt consolidation?

Debt consolidation typically involves a debt consolidation company that offers to lower your payments and your interest rates on your debt so that you can get your debt paid off more quickly.

It&#;s important before agreeing to any type of debt consolidation that you understand what you&#;re walking into. Not all debt consolidation plans are as beneficial as they might first seem.

Debt consolidation

A basic debt consolidation company will help you to move some or all of your debt to one place with a lower interest rate and a set number of months for the term of the loan. Again, when looking at debt consolidation companies it&#;s important to understand the terms and conditions of the loan before signing on the dotted line.

Debt settlement

Debt settlement differs from debt consolidation in that debt settlement companies work with your creditors to lower balances and interest rates in order to help you get debt paid off quickly. However, many debt settlement companies often charge fees for their services, and debt settlement does affect your credit report negatively.

If you choose to use a debt settlement company (and I only recommend this if you have changed your spending behavior and have exhausted all other means of paying off debt) be sure to do your research and understand the fees involved as well as the impact on your credit report.

Debt management

Debt management companies use certified credit counselors that help you to create a realistic budget and spending plan, collect a specific amount of money from you each month to be paid toward your debt and work to help you pay off creditors in a way that is comfortable for your financial situation yet gets your debt paid off in a specific amount of time. As with debt settlement plans, debt management plans also have the potential to negatively affect your credit record.

Some debt management companies charge a fee for services, but most reputable companies do not. Again, it&#;s important to read the fine print before signing any type of an agreement with a debt management company. I would also recommend checking online reviews before making a commitment to a debt management or debt settlement company.

Avoiding scams

Unfortunately, there are many debt management and debt settlement companies out there that are not as reputable as they would like potential clients to believe. In fact, experts on the subject would tell you that they&#;re downright scam artists. Here is how you can avoid getting scammed while seeking out debt payoff help.

  • Avoid debt relief companies that ask you to pay a large up-front fee.
  • Avoid companies that offer to remove justified negative reports from your credit card record.
  • Check online for company reviews and with your state&#;s commerce department to see if the company you are considering working with is licensed. Many states require debt management companies to be licensed.
  • Avoid companies that offer to eliminate large amounts of debt on your behalf.

There are reputable debt relief companies out there. The National Foundation for Credit Counseling is a long-running non-profit organization that accepts membership from reputable debt management centers. When you contact the NFCC, they can help you find a certified credit counseling agency in your area.

Before you refinance or consolidate your debt&#;

If you&#;re considering refinancing or consolidating your debt, it&#;s vital before making any restructuring decisions that you are committed to not borrowing any more money. If you refinance or consolidate your debt and start using your newly freed up credit card available balances, you could end up in even more debt than you started with.

Before you make any decisions to refinance or consolidate your debt, it&#;s important to get a good budget and spend-tracking plan into place, and to make sure that both you and your spouse are committed to spending within your budget so that your debt can get paid off as quickly as possible. Explore options like the debt snowball or debt avalanche for getting balances paid down quickly.

With proper planning and unwavering commitment, you can be debt free!

Read more: 5 crazy credit score myths

A better alternative to student loan debt relief companies

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Credit Card Refinancing vs Debt Consolidation Loans

If credit card debt, and attendant high interest, is hanging overhead like the Sword of Damocles, it’s probably time to take action. Among possible solutions are credit card refinancing and debt consolidation. Here’s a look at both options.

Credit Card Refinancing

Contents

Also called a balance transfer, credit card refinancing means switching a credit card balance from one card to another. It can also mean taking a $10, balance on a credit card that comes with percent interest and putting it on one that charges percent.

Credit Card Refinancing vs Debt Consolidation Loans

In that case, you could save eight percent annually &#; $ –by moving a $10, balance. But if that card has a month zero percent introductory rate, you’ll save almost $2, in interest in the first year alone. Many credit card companies offer such promotions to lure you to move your balance to them.

After all, more than anything else, credit card refinancing is all about securing a lower interest rate.A problem is that low- or no-interest promotional periods eventually expire, and cards frequently charge a balance transfer fee, which could total three percent to five percent of the total balance. So, a borrower with $10, in credit card debt who is facing a five percent fee would pay $ to transfer the balance, which he or she must weight against prospective savings. 

Debt Consolidation

When you look at credit card refinancing vs debt consolidation loans, they both have the same machinations, in that they both generally involve “moving” balances. With consolidation, you’re essentially transferring multiple credit card balances to one loan, with one monthly payment. 

Consolidation loans, which are personal loans, have fixed interest rates and payments, and exact loan terms. However, because personal loans are usually unsecured – not backed by collateral – they usually have higher interest rates than loans that are attached to collateral. Still, they don’t put your assets at risk, as would a secured loan. And overall, you may get a lower interest rate than what you’re paying now on your credit cards.

Credit Card Refinancing vs Debt Consolidation Loans

It can be difficult to qualify for loan consolidation. Some lenders charge origination fees of between one and eight percent, depending on your credit scoring. That score and factors such as payment history and income will also determine the rate the lender offers on such a loan.

Pros And Cons Of Each

The chief advantage of using a balance transfer card is the opportunity to eliminate your credit card debt while paying little, if any, interest during the card company’s promotional term.

If you have a credit card balance that could be paid within a year, a balance transfer could be a winning strategy. For some borrowers, though, interest rate savings may not sufficiently offset any transfer fee. Plus, credit card refinancing involves a revolving payment situation with potentially no end.

And, if you fail to pay off the card during the introductory period, the interest rate can shoot up and change even more thereafter.

As for a personal loan, which involves consolidating your debt and paying it off monthly, a main advantage is that you can’t add to your potential debt the way you could add to your revolving credit card debt.

Some consolidation loans do come with hidden fees such as prepayment penalties, which could impede you from paying down your loan faster.

In most consolidation cases, though, a fixed interest rate is possible. This means that payment amounts won’t change over mynewextsetup.us every borrower will qualify for consolidation, however. That means that this option may be best for those with a positive financial picture. Now that you understand credit card refinancing versus debt consolidation, you can make an educated decision regarding your financial situation.

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Raj Kumar is a qualified business/finance writer expert in investment, debt, credit cards, Passive income, financial updates. He advises in his blog finance clap.

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Taking loans can be highly helpful for people when they are in need. But lately, it can convert into a severe headache, too, If the loans are not paid in time, or the debt continues to rise. The majority of people make use of credit cards for small loans. However, later the debt becomes piled up and causes financial distress and disaster. Two ways can help you if you have a lot of credit card debt. The first is credit card refinancing, and the another is debt consolidation.

Credit Card Refinancing vs Debt Consolidation

The difference between Credit Card Refinancing and Debt Consolidation is that, in comparison to the debt consolidation process, credit card refinancing offers more flexibility and diversity. They also differ in the case of the average APR value or annual percentage rate and the repayment period. However, both of these processes need good to excellent credit scores for the payment to get sanctioned.

Only one credit card or loan can be refinanced when refinancing credit cards. When it comes to credit card refinancing, the typical annual percentage rate, or APR, fluctuates depending on the amount of debt owed. In the case of credit card refinancing or debt transfer deals, there is almost no set repayment period. Credit scores range from good to exceptional for credit card refinancing.

Debt consolidation is the process of combining several debts into a single larger debt. The average annual percentage rate for debt consolidation is %. In the event of debt consolidation, the repayment period is set between five and twenty years, and it is agreed upon with trustworthy lenders. A lump-sum payment or a large amount is given or paid to the borrower in the case of debt consolidation, and some lenders have the option of paying the creditors directly.

Comparison Table Between Credit Card Refinancing and Debt Consolidation

Parameters of ComparisonCredit Card RefinancingDebt Consolidation
Flexibility and variability Greater flexibility and variability. Lesser flexibility and variability.
Characteristic Only one credit card loan can be taken care of. All the debts are merged.
Average APR Varies %
Repayment time Not fixed. Fixed from years
Credit score Good- excellent. Good- excellent.
Funding of loans Transferring the balance of the amount into a new card. Lumpsum amount is paid to the borrower.

What is Credit Card Refinancing?

If the loans are not paid on time or if the debt grows. Credit cards are commonly used for minor loans by the majority of people. Debt, on the other hand, accumulates over time, resulting in financial trouble and calamity. Refinancing the credit card is simply a way to pay your debt.

In comparison to debt consolidation, credit card refinancing provides more flexibility and versatility. Only one credit card or loan can be refinanced with credit card refinancing. In the case of credit card refinancing, the average annual percentage rate, or APR, ranges from one debt amount to the next.

In the case of credit card refinancing or debt transfer programmes, there is almost no set repayment period. To refinance a credit card, you’ll need decent to excellent credit. In the case of credit card refinancing, the loan is funded by moving the balance of the amount into a new card.

What is Debt Consolidation?

In comparison to credit card financing, debt consolidation has a lower level of unpredictability and flexibility. Debt consolidation is the process of combining various debts into a single larger debt. In the case of debt consolidation, the annual percentage rate is set at per cent on average.

In the event of debt consolidation, the repayment period is set between five and twenty years, and it is agreed upon with reliable lenders. In the case of debt consolidation, your credit score should range from good to exceptional.

In the case of debt consolidation, the borrower receives a lump-sum payment or a large payment, and some lenders have the option of paying the creditors directly.

Main Differences Between Credit Card Refinancing and Debt Consolidation

  1. Credit card refinancing possesses greater flexibility and variability in comparison to the process of debt consolidation. On the other hand, Debt Consolidation possesses comparatively lesser variability and flexibility in comparison to credit card financing.
  2. In credit card refinancing, only one credit card or a loan can be refinanced. On the other hand, debt consolidation is all about merging one than one debt or multiple debts into one bigger debt.
  3. The average amount of the annual percentage rate or APR in the case of Credit card refinancing varies from one debt amount to another. On the other hand, in the case of debt consolidation, the average amount of the annual percentage rate is fixed at %.
  4. There is almost no fixed repayment time in the case of credit card refinancing. On the other hand, the repayment time fixed in the case of debt consolidation is around five to twenty years, which is fixed with lenders of credible partners.
  5. The credit needed in case of credit card refinancing is from good to excellent. On the other hand, the credit score in the case of debt consolidation should also be from good to excellent.
  6. The mode in which the loan is funded in case of credit card refinancing is by transferring the balance of the amount into a new card. On the other hand, In the case of Debt Consolidation, a lump sum amount or a heavy amount is sent or paid to the borrower, and some lenders have the option to pay the creditors directly.

Conclusion

When people are in need, taking out a loan can be beneficial. However, it has recently been known to turn into a severe headache. If the loans are not paid on time, or if the debt grows. For minor loans, the majority of consumers utilise credit cards. However, debt accumulates over time, causing financial strain and calamity. Thus, Debt consolidation and credit card refinancing are two options for coping with significant credit card debt.

In the case of both debt consolidation and credit card refinancing, or which is also known as bank transfer offers, your credit score should be between good and exceptional. Compared to credit card borrowing, debt consolidation has a lower level of unpredictability and flexibility. In the instance of credit card refinancing, the loan is funded by moving the outstanding balance to a new card.

References

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Should you consolidate your debt? This calculator is designed to help determine if debt consolidation is right for you. Fill in your loan amounts, credit card balances and other outstanding debt. You can then see what your monthly payment would be with a consolidated loan. Try adjusting your terms, loan types or rate until you find a consolidation plan that fits your needs—and most importantly your budget!

This calculator is for general education purposes only and is not an illustration of current Navy Federal products and offers.



Information and interactive calculators are made available to you as self-help tools for your independent use and are not intended to provide investment advice. We cannot and do not guarantee their applicability or accuracy in regards to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.

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Debt consolidation refinance: How it works, pros and cons

Is refinancing your mortgage to consolidate debt a good idea?

If you have lots of high-interest debt to pay each month, the costs can quickly become overwhelming. For some, the best road out of this situation is debt consolidation. 

Debt consolidation involves paying off all your high-interest debt with one, lower-interest loan to save on interest payments.

At today’s low mortgage rates, a debt consolidation refinance or home equity loan can be a great way to save money.

But it’s important to understand what’s involved with these strategies — the benefits as well as the potential pitfalls. Securing high-interest debt against your home can be risky, so weigh all the pros and cons before deciding.  

Check your refinance options (Dec 3rd, )

In this article (Skip to…)


How debt consolidation works

Debt consolidation is meant to make paying off your debts more affordable on a month-to-month basis. But just how does it work? 

John Sweeney, head of wealth and asset management at Figure, explains: “The goal is to pay off higher-interest debt with a lower-interest source of borrowing. And it’s generally good advice to pay as little interest as possible on the debt you hold.”

High-interest debt typically comes from unsecured borrowing sources, like credit cards and personal loans. “Unsecured” means the lender has no collateral to recoup losses if you default on the debt. (Unlike a mortgage, which is “secured” by your home.)

It’s easy to get in over your head with multiple high-interest payments going to various lenders each month. 

Consolidating your debt by rolling your outstanding balances into a lower-interest mortgage can simplify matters and save you a lot of money.

“Debt consolidation is worth pursuing if you have steady and predictable income and want to make your monthly payments more affordable,” says Michael Bovee, debt expert, and co-founder of Resolve. 

What is a debt consolidation refinance?

The goal of any debt consolidation strategy is to lower your monthly costs. And, Sweeney points out, the lowest-cost source of money for most homeowners is their primary mortgage.

At today’s low mortgage rates, you could potentially pay off credit card debts with an annual percentage rate of % using a mortgage loan carrying sub-4% interest. 

So, how does it work?

Homeowners wanting to consolidate debt often use a cash-out refinance. This involves taking out a new home loan worth more than your current mortgage balance. The ‘extra’ loan amount is cashed-out at closing.

You use the cashed-out funds to pay off existing high-interest debt, leaving you with one remaining debt to pay off: your mortgage. In this way, you’re effectively paying off expensive, unsecured debts via a lower-interest mortgage loan.

Funds from a cash-out refinance can also be used to pay off other major obligations, like student loans or medical bills.

But if your goal is to become debt-free faster, then the highest-interest debts should take priority. The money you save can later be applied toward paying down the principal on lower-interest debt like student loans.

And there’s an added benefit. Today’s mortgage interest rates are near historic lows. So there’s a good chance you can lower your current mortgage rate and save on home loan interest as well as the interest on your other debts.

Keep in mind that refinancing comes with closing costs, just like your original mortgage did. These often total % of the new loan amount — so look for an interest rate low enough that you’ll be able to recoup the up-front cost while saving on your external interest payments.

Check your cash-out refinance rates (Dec 3rd, )

Debt consolidation refinance requirements

If you want to consolidate debt using a mortgage refinance, you have to qualify for the new loan. Requirements vary depending on your current loan type and the type of cash-out refinance you apply for.

First, you need enough equity to pay off the existing debts.

You’ll typically need significantly more than 20% equity to qualify for a debt consolidation mortgage. That’s because most lenders want you to leave at least 20% of your home equity untouched when using a cash-out refinance.

For example, % equity is needed to get % in cash.

You’ll also need to meet minimum credit score requirements. A conventional cash-out refinance — the most common type — requires a credit score of at least

FHA also has a cash-out refinancing program, which allows a lower FICO score of But be aware that taking out a new FHA loan means you’ll pay for mortgage insurance premium (MIP), including both an upfront fee and monthly mortgage insurance fee. This will increase the total cost of your new loan and eat into your savings margin.

For qualified veterans and service members, another option is to consolidate debt via the VA cash-out refinance.

Unlike other refi programs, the VA cash-out loan lets you refinance % of your home’s value. Veterans might qualify even if they don’t have enough equity for a conventional cash-out loan.

Verify your cash-out refinance eligibility (Dec 3rd, )

Other debt consolidation loan options

A different way to tap into your home’s equity and pay off debt is with a home equity loan or home equity line of credit (HELOC). 

A HELOC works as a revolving line of credit with an adjustable interest rate (often based on the prime rate), plus a margin. It’s sort of like a credit card secured against your home — you borrow only what you need at the time you need it, and begin repayment only when there’s a balance owed. 

With a fixed-rate home equity loan, you get a lump sum at closing that you can use to pay off your debts.

Both HELOCs and home equity loans can charge closing costs and/or origination fees. 

“A HELOC is a great option if your primary mortgage is already at a competitive rate or you can’t qualify for a new mortgage currently,” says Sweeney.

In other words, if it’s not a good time for you to refinance, HELOCs and home equity loans offer another route to get lower interest by securing your debts against your home. 

Personal loans (“debt consolidation loans”)

A debt consolidation loan works differently from a debt consolidation refinance.

“It is typically an unsecured personal loan, with fixed payment terms, used to pay off high-interest debt,” explains Bovee. 

“Your interest rate on this loan is likely to be significantly lower than credit cards will charge. But it’s probably not as low as a debt consolidation refinance or HELOC would be,” he notes. 

Bovee adds that a personal loan debt consolidation is a better option if you don’t own a home or don’t have enough equity in your home to borrow against.

Pros and cons of a debt consolidation mortgage  

Debt consolidation can be a smart way to get out of debt faster. But if you slip up after taking out a mortgage refinance, the potential risks are high.

Benefits

The obvious benefit of a debt consolidation refinance is that you’ll save money by lowering the interest rate on your outstanding debts. This could save you a huge amount of money in the long run.

“Say you had four or five credit cards with interest rates in the 18 to 25% range that are at or near their credit limit,” says Bruce Ailion, Realtor and real estate attorney. “Assume you are making minimum monthly payments, too. Not only will you likely never pay these off. You’ll also pay a great deal in interest.”

Now imagine that you consolidated all of these debts into one loan with an annual percentage rate below 4%.

“You would save big money. In fact, the savings you’ll reap on paying less interest could be applied toward the [loan] principal. That means you can pay off the entire debt quicker,” Ailion adds.

Consolidating your debt can also improve your credit score. It helps by lowering your “credit utilization ratio,” which is the percentage of your total credit limit that you’re using at any given time.

In general, the lower your utilization ratio, the better your FICO score.  

Drawbacks

Paying off high-interest credit cards with a low-rate mortgage refinance might sound like a no-brainer. But there are some very real pitfalls to watch out for.

Debt consolidation strategies have a high failure rate. And credit experts say that many who use home equity to pay off credit cards will then run their cards up again — until they’re in even worse shape than when they began. 

Remember: “Unlike unsecured credit card or personal loan debt, mortgage debt is secured [against your home],” cautions Ailion.

“That means you’re pledging your equity as collateral for the money you borrow. If you happen to default and declare bankruptcy, debts that were previously dischargeable are now secured by your equity.”

In a worst-case scenario, a homeowner could refinance their debts then run up new debts so high they can no longer afford monthly mortgage payments. They could face foreclosure and eventually lose their home.

It’s also important to remember that a mortgage refinance involves resetting your loan term. If you were 10 years into a year mortgage at the time of refinance, your remaining term would reset from 20 to 30 years. 

This means you’ll be paying interest for an extended period of time. So despite short-term savings on your higher-interest debt, you could end up paying more when all is said and done. 

Overall, a debt consolidation refinance can be a smart way to pay down debts at a much lower interest rate. But it requires a high level of discipline in making payments to avoid negative consequences. 

Remember, you still owe the money

With any type of debt consolidation loan, the borrower should exercise caution and be extremely disciplined with repayment. That’s especially true with a mortgage or home equity-backed loan, which could put your home at risk if you’re unable to make payments. 

Borrowers sometimes get into trouble because when debt is consolidated, their prior credit lines are usually freed up. It’s possible to charge those lines to the max and be in debt trouble all over again.

Remember, consolidation does not mean your debts have been “wiped out.” They’re just restructured to be more manageable. The real goal is to be debt-free; a refinance or loan is just a means to that end.

Your next steps

Debt consolidation can be a legitimate road to debt-freedom for careful borrowers. But you need to be aware of the potential pitfalls beforehand in order to avoid them and pay down debt successfully. 

  • Seek help to get spending under control
  • Make a higher-than-minimum payment on credit cards
  • Consider zero-interest transfers or personal loans as alternatives

Start by comparing mortgage refinance rates from a few lenders to learn how much you might be able to save by paying off your debts at a lower interest rate. 

Verify your new rate (Dec 3rd, )

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Pros And Cons Of Debt Consolidation

Between credit cards, student loans and auto loans, it can be difficult to keep track of payments and balances on outstanding debts. Consolidating these debts into a single loan may streamline your finances, but the strategy likely won’t fix underlying financial challenges. For that reason, it’s important to understand the pros and cons of debt consolidation before committing to a new loan.

To help you decide whether debt consolidation is the right way to pay off your loans, we’ll walk you through the advantages and disadvantages of this popular strategy.

What Is Google store synchrony login Consolidation?

Debt consolidation is the process of paying off multiple debts with a new loan or balance transfer credit card—often at a lower interest rate.

The process of consolidating debt with a personal loan involves using the proceeds to pay off each individual loan. While some lenders offer specialized debt consolidation loans, you can use most standard personal loans for debt consolidation. Likewise, some lenders pay off loans on behalf of the borrower, while others disburse the proceeds so the borrower can make the payments themselves.

With a balance transfer credit card, qualified borrowers typically get access to a 0% introductory APR for a period between six months and two years. The borrower can identify the balances they want to transfer when opening the card or transfer the balances after the provider issues the card.

Is Debt Consolidation a Good Idea?

Debt consolidation is usually a good idea for borrowers who have several high-interest can i buy fractional shares on td ameritrade. However, it may only be feasible if your credit score has improved since applying for the original loans. If your credit score isn’t high enough to qualify for a lower interest rate, it may not make sense to consolidate your debts.

You may also want to think twice about debt consolidation if you haven’t addressed the underlying problems that led to your current debts, like overspending. Paying off multiple credit cards with a debt consolidation loan is not an excuse to run up the balances again, and it can lead to more substantial financial issues down the line.

Pros of Debt Consolidation

Consolidating your debt can have a number of advantages, including faster, more streamlined payoff and lower interest payments.

1. Streamlines Finances

Combining multiple outstanding debts into a single loan reduces the number of payments and interest rates you have to worry about. Consolidation can also improve your credit by reducing the chances of making a late payment—or missing a payment entirely. And, if you’re working toward a debt-free lifestyle, you’ll have a better idea of when all of your debt will be paid off.

2. May Expedite Payoff

If your debt consolidation loan is accruing less interest than the individual loans would, consider making extra payments with the money you save each month. This can help you pay off the debt earlier, thereby saving even more on interest in the long run. Keep in mind, however, that debt consolidation typically leads to more extended loan terms—so you’ll have to make a point of paying your debt off early to take advantage of this benefit.

3. Could Lower Interest Rate

If your credit score has improved since applying for other loans, you may be able to decrease your overall interest rate by consolidating debts—even if you have mostly low-interest loans. Doing so can save you money over the life of the loan, especially if you don’t consolidate with a long loan term. To ensure you get the most competitive rate possible, shop around and focus on lenders that offer a personal loan prequalification process.

Remember, though, that some types of debt come with higher interest rates than others. For example, credit cards generally have higher rates than student loans. Consolidating multiple debts with a single personal loan can result in a rate that is lower than some of your debts but higher than others. In this case, focus on what you’re saving as a whole.

4. May Reduce Monthly Payment

When consolidating debt, your overall monthly payment is likely to decrease because future payments are spread out over a new and, perhaps extended, loan term. While this can be advantageous from a monthly budgeting standpoint, it means that you could pay more over the life of the loan, even with a lower interest rate.

5. Can Improve Credit Score

Applying for a new loan may result in a temporary dip in your credit score because of the hard credit inquiry. However, debt consolidation can also improve your score in a number of ways. For example, paying off revolving lines of credit, like credit cards, can reduce the credit utilization rate reflected in your credit report. Ideally, your utilization credit card refinancing vs debt consolidation should be under 30%, and consolidating debt responsibly can help you accomplish that. Making consistent, on-time payments—and, ultimately, paying off the loan—can also improve your score over time.

Cons of Debt Consolidation

A debt consolidation loan or balance transfer credit card may seem like a good way to streamline debt payoff. That said, there are some risks and disadvantages associated with this strategy.

1. May Come With Added Costs

Taking out a debt consolidation loan may involve additional fees like origination fees, balance transfer fees, closing costs and annual fees. When shopping for a lender, make sure you understand the true cost of each debt consolidation loan before signing on the dotted line.

2. Could Raise Your Interest Rate

If you qualify for a lower interest rate, debt consolidation can be a smart decision. However, if your credit score isn’t high enough to access the most competitive rates, you may be stuck with a rate that’s higher than on your current debts. This may mean paying origination fees, plus more in interest over the life of the loan.

3. You May Pay More In Interest Over Time

Even if your interest rate goes down when consolidating, you could still pay more in interest over the life of the new loan. When you consolidate debt, the repayment timeline starts from day one and may extend as long as seven years. Your overall monthly payment may be lower than you’re used to, but interest will accrue for a longer period of time.

To sidestep this issue, budget for monthly payments that exceed the minimum loan payment. This way, you can take advantage of the benefits of a debt consolidation loan while avoiding the added interest.

4. You Risk Missing Payments

Missing payments on a debt consolidation loan—or any loan—can cause major damage to your credit score; it may also subject you to added fees. To avoid this, review your budget to ensure you can comfortably cover the new payment. Once you consolidate your debts, take advantage of autopay or any other tools that can help you avoid missed payments. And, if you think you may miss an upcoming payment, communicate that to your lender as soon as possible.

5. Doesn’t Solve Underlying Financial Issues

Consolidating debt can simplify payments but it doesn’t address any underlying financial habits that led to those debts in the first place. In fact, many borrowers how to close account td bank take advantage of debt consolidation find themselves in deeper debt because they didn’t curb their spending and continued to build debt. So, if you’re considering debt consolidation to pay off multiple maxed-out credit cards, first take time to develop healthy financial habits.

6. May Encourage Increased Spending

Similarly, paying off credit cards and other lines of credit with a debt consolidation loan may create the illusion of having more money than you actually have. It’s easy for borrowers to fall into the trap of paying off debts, only to find their balances have climbed once again.

Make a budget to reduce spending and stay on top of payments so you don’t end up racking up more debt than you started with.

When You Should Consolidate Your Debt

Debt consolidation can be a wise financial decision under the right circumstances—but it’s not always your best bet. Consider consolidating your debt if you have:

  • A large amount of debt. If you have a small amount of debt you can pay off in a year or less, debt consolidation is likely not worth the fees and credit check associated with a new loan.
  • Additional plans to improve your finances. While you can’t avoid some debts—like medical loans—others are the result of overspending or other financially dangerous behavior. Before consolidating your debt, evaluate your habits and come up with a plan to get your finances under control. Otherwise, you may end up with even more debt than you had before consolidating.
  • A credit score high enough to qualify for a lower interest rate. If your credit score has increased since taking out your other loans, you’re more likely to qualify for a debt consolidation rate that’s lower than your current rates. This can help you save on interest over the life of the loan.
  • Cash flow that comfortably covers monthly debt service. Only consolidate your debt if you have enough income to cover the new monthly payment. While your overall monthly payment may go down, consolidation is not a good option if you’re currently unable to cover your monthly debt service.

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Debt consolidation refinance: How it works, pros and cons

Is refinancing your mortgage to consolidate debt a good idea?

If you have lots of high-interest debt to pay each month, the costs can quickly become overwhelming. For some, the best road out of this situation is debt consolidation. 

Debt consolidation involves paying off all your high-interest debt with one, lower-interest loan to save on interest payments.

At today’s low mortgage rates, a debt consolidation refinance or home equity loan can be a great way to save money.

But it’s important to understand what’s involved with these strategies — the benefits as well as the potential pitfalls. Securing high-interest debt against your home can be risky, so weigh all the pros and cons before deciding.  

Check your refinance options (Dec 3rd, )

In this article (Skip to…)


How debt consolidation works

Debt consolidation is meant to make paying off your debts more affordable on a month-to-month basis. But just how does it bank of america notary service near me Sweeney, head of wealth and asset management at Figure, explains: “The goal is to pay off higher-interest debt with a lower-interest source of borrowing. And it’s generally good advice to pay as little interest as possible on the debt you hold.”

High-interest debt typically comes from unsecured borrowing sources, like credit cards and personal loans. “Unsecured” means the lender has no collateral to recoup losses if you default on the debt. (Unlike a mortgage, which is “secured” by your home.)

It’s easy to get in over your head with multiple high-interest payments going to various lenders each month. 

Consolidating your debt by rolling your outstanding balances into a lower-interest mortgage can simplify matters and save you a lot of money.

“Debt consolidation is worth pursuing if you have steady and predictable income and want to make your monthly payments more affordable,” says Michael Bovee, debt expert, and co-founder of Resolve. 

What is a debt consolidation refinance?

The goal of any debt consolidation strategy is to lower your monthly costs. And, Sweeney points out, the lowest-cost source of money for most homeowners is their primary mortgage.

At today’s low mortgage rates, you could potentially pay off credit card debts with an annual percentage rate of % using a mortgage loan carrying sub-4% interest. 

So, how does it work?

Homeowners wanting to consolidate debt often use a cash-out refinance. This involves taking out a new home loan worth more than your current mortgage balance. The ‘extra’ loan amount is cashed-out at closing.

You use the cashed-out funds to pay off existing high-interest debt, leaving you with one remaining debt to pay off: your mortgage. In this way, you’re effectively paying off expensive, unsecured debts via a lower-interest mortgage loan.

Funds from a cash-out refinance national weather service nevada city ca also be used to pay off other major obligations, like student loans or medical bills.

But if your goal is to become debt-free faster, then the highest-interest debts should take priority. The money you save can later be applied toward paying down the principal on lower-interest debt like credit card refinancing vs debt consolidation loans.

And there’s an added benefit. Today’s mortgage interest rates are near historic lows. So there’s a good chance you can lower your current mortgage rate and save on home loan interest as well as the interest on your other debts.

Keep in mind that refinancing comes with closing costs, just like your original mortgage did. These often total % of the new loan amount — so look for an interest rate low enough that you’ll be able to recoup the up-front cost while saving on your external interest payments.

Check your cash-out refinance rates (Dec 3rd, )

Debt consolidation refinance requirements

If you want to consolidate debt using a mortgage refinance, you have to qualify for the new loan. Requirements vary depending on your current loan type and the type of cash-out refinance you apply for.

First, you need enough equity to pay off the existing debts.

You’ll typically need significantly more than 20% equity to qualify for a debt consolidation mortgage. That’s because most lenders want you to leave at least 20% of your home equity untouched when using a cash-out refinance.

For example, % equity is needed to get % in cash.

You’ll also need to meet minimum credit score requirements. A conventional cash-out refinance — the most common type — requires a credit score of at least

FHA also has a cash-out refinancing program, which allows a lower FICO score of But be aware that taking out a new FHA loan means you’ll pay for mortgage insurance premium (MIP), including both an upfront fee and monthly mortgage insurance fee. This will increase the total cost of your new loan and eat into your savings margin.

For qualified veterans and service members, another option is to consolidate debt via the VA cash-out refinance.

Unlike other refi programs, the VA cash-out loan lets you refinance % of your home’s value. Veterans might qualify even if they don’t have enough equity for a conventional cash-out loan.

Verify your cash-out refinance eligibility (Dec 3rd, )

Other debt consolidation loan options

A different way to tap into your home’s equity and pay off debt is with a home equity loan or home equity line of credit (HELOC). 

A HELOC works as a revolving line of credit with an adjustable interest rate (often based on the prime rate), plus a margin. It’s sort of like a credit card secured against your home — you borrow only what you need at the time you need it, and begin repayment only when there’s a balance owed. 

With a fixed-rate home equity loan, you get a lump sum at closing that you can use to pay off your debts.

Both HELOCs and home equity loans can charge closing costs and/or origination fees. 

“A HELOC is a great option if your primary mortgage is already at a competitive rate or you can’t qualify for a new mortgage currently,” says Sweeney.

In other words, if it’s not a good time for you to refinance, HELOCs and home equity loans offer another route to get lower interest by securing your debts against your home. 

Personal loans (“debt consolidation loans”)

A debt consolidation loan works differently from a debt consolidation refinance.

“It is typically an unsecured personal loan, with fixed payment terms, used to pay off high-interest debt,” explains Bovee. 

“Your interest rate on this loan is likely to be significantly lower than credit cards will charge. But it’s probably not as low as a debt consolidation refinance or HELOC would be,” he notes. 

Bovee adds that a personal loan debt consolidation is a better option if you don’t own a home or don’t have enough equity in your home to borrow against.

Pros and cons of a debt consolidation mortgage  

Debt consolidation can be a smart way to get out of debt faster. But if you slip up after taking out a mortgage refinance, the potential risks are high.

Benefits

The obvious benefit of a debt consolidation refinance is that you’ll save money by lowering the interest rate on your outstanding debts. This could save you a huge amount of money in the long run.

“Say you had four or five credit cards with interest rates in the 18 to 25% range that are at or near their credit limit,” says Bruce Ailion, Realtor and real estate attorney. “Assume you are making minimum monthly payments, too. Not only will you likely never pay walking the west highland way in 4 days off. You’ll also pay a great deal in interest.”

Now imagine that you consolidated all of these debts into one loan with an annual percentage rate below 4%.

“You would save big money. In fact, the savings you’ll reap on paying less interest could be applied toward the [loan] principal. That means you can pay off the entire debt quicker,” Ailion adds.

Consolidating your debt can also improve your credit score. It helps by lowering your “credit utilization ratio,” which is the percentage of your total credit limit that you’re using at any given time.

In general, the lower your utilization ratio, the better your FICO score.  

Drawbacks

Paying off high-interest credit cards with a low-rate mortgage refinance might sound like a no-brainer. But there are some very real pitfalls to watch out for.

Debt consolidation strategies have a high failure rate. And credit experts say that many who use home equity to pay off credit cards will then run their cards up again — until they’re in even worse shape than when they began. 

Remember: “Unlike credit card refinancing vs debt consolidation credit card or personal loan debt, mortgage debt is secured [against your home],” cautions Ailion.

“That means you’re pledging your equity as collateral for the money you borrow. If you happen to default and declare bankruptcy, debts that were previously dischargeable credit card refinancing vs debt consolidation now secured by your equity.”

In a worst-case scenario, a homeowner could refinance their debts then run up new debts so high they can no longer afford monthly mortgage payments. They could face foreclosure and eventually lose their home.

It’s also important to remember that a mortgage refinance involves resetting your loan term. If you were 10 years into a year mortgage at the time of refinance, your remaining term would reset from 20 to 30 years. 

This means you’ll be paying interest for an extended period of time. So despite short-term savings on your higher-interest debt, you could end up paying more when all is said and done. 

Overall, a debt consolidation refinance can be a smart way to pay down debts at a much lower interest rate. But it requires a high level of discipline in making payments to avoid negative consequences. 

Remember, you still owe the money

With any type of debt consolidation loan, the borrower should exercise caution and be extremely disciplined with repayment. That’s especially true with a mortgage or home equity-backed loan, which could put your home at risk if you’re unable to make payments. 

Borrowers sometimes get into trouble because when debt is consolidated, their prior credit lines are usually freed up. It’s possible to charge those lines to the max and be in debt trouble all over again.

Remember, consolidation does not mean your debts have been “wiped out.” They’re just restructured to be more manageable. The real goal is to be debt-free; a refinance or loan is just a means to that end.

Your next steps

Debt consolidation can be a legitimate road to debt-freedom for careful borrowers. But you need to be aware of the potential pitfalls beforehand in order to avoid them and pay down debt successfully. 

  • Seek help to get spending under control
  • Make a higher-than-minimum payment on credit cards
  • Consider zero-interest transfers or personal loans as alternatives

Start by comparing mortgage refinance rates from a few lenders to learn how much you might be able to save by paying off your debts at a lower interest rate. 

Verify your new rate (Dec 3rd, )

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Debt Consolidation vs. Refinancing

Credit Card Refinancing vs. Debt Consolidation

Let&#;s take a closer look at examining the difference between credit card debt refinancing and credit card debt consolidation. The primary difference between credit card debt refinancing and debt consolidation, is that in credit card debt refinancing, rather than taking out a DCL, the refinancing can take place through a promotional interest rate balance transfer.

A balance transfer credit card allows you to refinance by transferring high interest rate credit card debt from an existing credit card account to another credit card account at a lower promotional interest rate for a specific period of time. In the best of circumstances, the promotional interest rate on the credit card balance transfer will be as low as 0% for a period as long as twelve to twenty-four months.

These 0% balance transfer credit cards are highly sought after and often considered the best balance transfer credit cards available, and therefore are generally reserved for those individuals possessing strong FICO credit scores well into the s or higher.

However, it is not uncommon for individuals with good to very good FICO credit scores to still qualify for some of the best balance transfer credit cards available.

Sounds pretty good, right? However, there are some important details of which to be aware. Be absolutely clear as to the length of the promotional interest rate period on a balance transfer credit card.

You should realize that following the expiration of this promotional rate period, the interest rate on a balance transfer will climb substantially higher &#; often to as high as the interest rate for credit card purchases &#; which can be 15%%. Therefore, timing is of the essence.

If you believe that you will be able to pay off the full balance (or close to it) before the promotional interest rate period expires, then this form of credit card debt refinancing can make sense for you. However, if your cash flow dictates that it will take longer to pay off the balance, then credit credit card refinancing vs debt consolidation debt consolidation will often be the better approach.

You should also be clear about any balance transfer fees. Only the very best balance transfer cards have no balance transfer fees &#; most balance transfers will involve additional fees of 3%-5% of the amount of the transfer.

Turning to credit card debt consolidation, it is important to realize that it requires organization, patience and time. Organization means taking the time to itemize all bills &#; credit card, medical, utility, and other unsecured debts, and to total all necessary expenses &#; rent, groceries, transportation, etc, before determining the amount remaining that can be allocated toward a single monthly payment on a debt consolidation loan. It is also important to consider whether you are the type of person who can exercise the self-discipline necessary to curb extra spending on restaurants, clothing, sporting events and other luxuries that simply need to be avoided until your debt problem is resolved.

Taking out a DCL means taking out more debt &#; and so it is an absolute must that the funds from a debt consolidation loan be entirely allocated toward paying off pre-existing debt balances. DCLs are good in that they provide a timeline and a pathway out of debt &#; but only if you behave responsibly.

If you&#;re looking to simplify the repayment process on a number of unsecured debts while saving money on pauls valley first united bank expense over the long term, and have the self-discipline to allocate the funds generated through a DCL responsibly while continuing to curb your spending behavior, then debt consolidation can be an appropriate form of debt relief for your unsecured debt problem.

Steven Brachman is the lead content provider for mynewextsetup.us A graduate of the University of Michigan with a B.A. in Economics, Steven spent several years as a registered representative in the securities industry before moving on to equity research and trading. He is also an experienced test-prep professional and admissions consultant to aspiring graduate business school students. In his spare time, Steven enjoys writing, reading, travel, music and fantasy sports.

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Debt consolidation

Form of debt refinancing

Debt consolidation is a form of debt refinancing that entails taking out one loan to pay off many others.[1] This commonly refers to a personal finance process of individuals addressing high consumer debt, but occasionally it can also refer to a country's fiscal approach to consolidate corporate debt or Government debt.[2] The process can secure a lower overall interest rate to the entire debt load and provide the convenience of servicing only one loan or debt.[3]

Overview[edit]

Further information: consumer debt

Debt generally refers to money owed by one party, the debtor, to a second party, the creditor. It is generally subject to repayments of principal and interest.[4]Interest is the fee charged by the creditor to the debtor, generally calculated as a percentage of the principal sum per year known as an interest rate and generally paid periodically at intervals, such as monthly. Debt can be secured with collateral or unsecured.

Although there is variation from country to country and even in regions within country, consumer debt is primarily made up of home loans, credit card debt and car loans. Household debt is the consumer debt of the adults in the household plus the mortgage, if applicable. In many countries, especially the United States and the United Kingdom, student loans can be a significant portion of debt but are usually regulated differently than other debt.[5] The overall debt can reach the point where a debtor is in danger of bankruptcy, insolvency, or other fiscal emergency.[6] Options available to overburdened debtors include credit counseling and personal bankruptcy.

Other consumer options include:

  • debt settlement, where an individual's debt is negotiated to a lesser interest rate or principal with the creditors to lessen the overall burden;
  • debt relief, where part or whole of an individual debt is forgiven; and
  • debt consolidation, where the individual is able to acquit the current debts by taking out a new loan.[7]

Sometimes the solution includes some of each of these tactics.[8]

Process[edit]

The bulk of the consumer debt, especially that with a high interest, is repaid by a new loan. Most debt consolidation loans are offered from lending institutions and secured as a second mortgage or home equity line of credit.[8] These require the individual to put up a home as collateral and the loan to be less than the equity available.

The overall lower interest rate is an advantage that debt consolidation loan offers to consumers. Lenders have fixed costs to process payments and repayment can spread out over a larger period. However, such consolidation loans have costs: fees, interest, and "points" where one point equals to one percent of the amount borrowed. In some countries, these loans may provide certain credit card refinancing vs debt consolidation advantages.[9] Because they are secured, a lender can attempt to seize property if the borrower goes into default.

Personal loans comprise another form of debt consolidation loan. Individuals can issue debtors a personal loan that satisfies the outstanding debt and creates a new one on their own terms. These loans, often unsecured, are based on the personal relationship rather than collateral.

In United States, there are certain companies and private law firms, addressed as debt relief companies and/or debt consolidation companies, that provide professional debt consolidation services.

A Consumer can approach them for debt help, and make only one monthly payment to them. This payment will then be disbursed, by these companies, among the various creditors, the consumer is indebted to. Many other countries, alongside United States, also have such professional services for the benefit of consumers, struggling with household debt.[citation needed]

Student loan consolidation[edit]

In the United States, student loans which are part of the Federal Direct Student Loan Program are consolidated somewhat differently from in the UK, as federal student loans are guaranteed by the U.S. government.

United States[edit]

In a federal student loan consolidation, existing loans are purchased by the Department of Education. First national bank livingston tx consolidation, a fixed interest rate is set based on the then-current interest rate. Reconsolidating does not change that rate. If the student combines loans of different types and rates into one new consolidation loan, a weighted average calculation will establish the appropriate rate based on the then-current interest rates of the different loans being consolidated together.[10][11]

Federal student loan consolidation is often referred to as refinancing, which is incorrect because the loan rates are not changed, merely locked in. Unlike private sector debt consolidation, student loan consolidation does not incur any fees for the borrower; private companies make money on student loan consolidation by reaping subsidies from the federal government.

United Kingdom[edit]

In the UK student loan entitlements are guaranteed, and are recovered using a means-tested system from the student's future income. Student loans in the UK can not be included in bankruptcy, but do not affect a person's credit rating because the repayments are deducted from salary at source by employers, similar to Income Tax and National Insurance contributions. Many students, however, struggle with commercial debt well after their courses have finished.[12]

Australia[edit]

Australia’s student loan system once had 35 years to pay back loans, but it’s currently Those seriously delinquent on student loans face arrest at the border.[5]

Japan[edit]

In Japan, an increasing number of student loans are in arrears. This has caused the Asian nation to take harsher steps when it comes to lending determinations. In an effort to prevent future defaults, Japan has begun associating loan approvals to academic performance.[5]

See also[edit]

References[edit]

  1. ^Fontinelle, Amy (November 26, ). "Alternatives To Balance Transfers". Investopia. Retrieved 21 December
  2. ^Global risk insights (December 20, ). "China's Interest Rate Cut Not as Reformist As It Seems". Seeking Alpha. Retrieved 21 December
  3. ^Joan Ryan (14 January ). Personal Financial Literacy. Cengage Learning. pp.&#;–. ISBN&#. Retrieved 13 December
  4. ^"Debt Definition". Investopedia. Retrieved 16 May
  5. ^ abcRowan, Rachel (June 7, ). "Student Loans Around the Globe". mynewextsetup.us - Student Loan. Retrieved 21 December
  6. ^Lois A. Vitt; E. Craig MacBean; Jürg K. Siegenthaler; Institute for Socio-Financial Studies (30 November ). Encyclopedia of Retirement and Finance. Greenwood Publishing Group. pp.&#;37–. ISBN&#. Retrieved 13 December
  7. ^"How Does Debt Consolidation Work: Do's and Don'ts". SDL Financial Choice. Retrieved 18 June
  8. ^ abStaff writer. "Coping with Debt". FEDERAL TRADE COMMISSION. US Government. Retrieved 21 December
  9. ^Detweiller, Gerri (December 14, ). "Congress Extends Tax Break for Troubled Homeowners, But Headaches Aren't Over". Fox Business News. Pioneer bank and trust sturgis sd 21 December
  10. ^Deborah Lucas (August ). Costs and Policy Options for Federal Student Loan Programs. DIANE Publishing. pp.&#;1–. ISBN&#. Retrieved 13 December
  11. ^Griffen, Ethel (May 17, ). "How Does Consolidating Student Loans Affect Your Credit?". Direct Loan Transfer. Retrieved 14 August
  12. ^"Debt Facts and Figures - Compiled August "(PDF). mynewextsetup.us August Retrieved 10 May

External links[edit]

Источник: mynewextsetup.us

Learn How Debt Consolidation Works

Even if you don't have a stack of credit card bills with high interest rates, you may have school loans, car loans or high-interest loans. There are ways to manage your debt so you can pay less in interest, minimize monthly payments and eventually eliminate these loans altogether. Consider these three ways to reduce your debt.
 

1. Look for lower interest rates

A lower interest rate allows for a higher portion of your payments to go towards paying off the principal of the loan, so you can pay off the debt faster. Here are a few ways to get a lower rate:

  • Request a lowered interest rate from your credit card provider
  • Open a lower interest credit card, and make a balance transfer
  • Move balances off of cards with especially high interest rates, and onto cards that can minimize these charges
     

2. Consolidate debt with loans or lines of credit.

Not only will debt consolidation help you better organize your monthly payments, but it should also allow you to pay less in interest than all your previous rates combined. Here are just a few ways you can combine and manage your debt:

  • Apply for a debt consolidation loan, and then pay just the single monthly payment on your new loan
  • Open a line of credit rather than taking out another loan, then repay the line of credit as you use it
     

3. Refine your debt paying strategy.

Once you've consolidated your debts into as few loans or payments as possible, you may still have to prioritize the debts you can afford to pay first. There are two schools of thought on this.
 

Pay off your highest interest loans first
Some financial experts will advise you to tackle the highest-rate debt first because interest is accruing at a brisk pace. If the loan balances on your high-interest debts are within your reach to pay, this can be a good strategy. However, the debt with the highest interest rate may also be the largest loan or debt you have, meaning it will take credit card refinancing vs debt consolidation to pay it off and make a dent in your overall debt load.
 

Pay smaller loans first
Eliminating several smaller loans and debts first may be a better solution. You'll reduce your overall debt load, and get the satisfaction of having some initial success.
 

CIBC has a borrowing solution for you.

CIBC Personal Loans and Lines of Credit enable you to borrow with flexibility at competitive interest rates. Talk to a CIBC advisor today at You can get your questions answered and learn about CIBC's lending products. Or, start your loan application online now.

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When you&#;ve decided it&#;s time to pay off your consumer debt once and for all, planning is key. It&#;s a smart idea to start by writing down all of your debt obligations, including each loan or credit card balance, who it&#;s payable to, the minimum payment and the current interest rate.

From there you can move on to making a plan to get your debt paid off as soon as possible. Among the options to help speed up debt repayment are debt consolidation and debt refinance.

What&#;s the difference between the two? Is one better than the other?  Here&#;s what you need to know before you agree to consolidate or refinance your credit card or other consumer debt.

Read more: 4 easy ways people with limited or low income can save for retirement

What is debt refinancing?

Debt refinancing involves moving your debt to a lower interest rate vehicle, either by transferring credit card balances to a credit card with a lower interest rate, transferring debt to a home equity loan product or transferring debt to a lending company.

With debt refinancing, the goal is to lower the overall interest rate that you are paying. For instance, if you have credit card balances with interest rates in the 15% to 20% range, you could refinance those balances to a lending company such as Sofi, Prosper or Lending Club and get a lower rate, typically between 6% and 12% depending on your credit history.

Whichever refinancing option you choose in order to lower the interest rates you are paying on consumer debt, it&#;s important to look at the fine print so that you clearly understand all fees, closing costs and interest rate rules associated with the new loan option you are considering. It&#;s wise not to agree to any type of refinance loan until you understand exactly what you are getting.

What is debt consolidation?

Debt consolidation typically involves a debt consolidation company that offers to lower your payments and your interest rates on your debt so that you can get your debt paid off more quickly.

It&#;s important before agreeing to any type of debt consolidation that you understand what you&#;re walking into. Not all debt consolidation plans are as beneficial as they might first seem.

Debt consolidation

A basic debt consolidation company will help you to move some or all of your debt to one place with a lower interest rate and a set number of months for the term of the loan. Again, when looking at debt consolidation companies it&#;s important to understand the terms and conditions of the loan before signing on the dotted line.

Debt settlement

Debt settlement differs from debt consolidation in that debt settlement companies work with your creditors to lower balances and interest rates in credit card refinancing vs debt consolidation to help you get debt paid off quickly. However, many debt settlement companies often charge fees for their services, and debt settlement does affect your credit report negatively.

If you choose to use a debt settlement company (and I only recommend this if you have changed your spending behavior and have exhausted all other means of paying off debt) be sure to do your research and understand the fees involved as well as the impact on your credit report.

Debt management

Debt management companies use certified credit counselors that help you to create a realistic budget and spending plan, collect a specific amount of money from you each month to be paid toward your debt and work to help you pay off creditors in a way that is comfortable for your financial situation yet gets your debt paid off in a specific amount of time. As with debt settlement plans, debt management plans also have the potential to negatively affect your credit record.

Some debt management companies charge a fee for services, but most reputable companies do not. Again, it&#;s important to read the fine print before signing any type of an agreement with a debt management company. I would also recommend checking online reviews before making a commitment to a debt management or debt settlement company.

Avoiding scams

Unfortunately, there are many debt management and debt settlement companies out there that are not as reputable as they would like potential clients to believe. In fact, experts on the subject discover order checks tell you that they&#;re downright scam artists. Here is how you can avoid getting scammed while seeking out debt payoff help.

  • Avoid debt relief companies that ask you to pay a large up-front fee.
  • Avoid companies that offer to remove justified negative reports from your credit card record.
  • Check online for company reviews and with your state&#;s commerce department to see if the company you are considering working with is licensed. Many states require debt management companies to be licensed.
  • Avoid companies that offer to eliminate large amounts of debt on your behalf.

There are reputable debt relief companies out there. The National Foundation for Credit Counseling is a long-running non-profit organization that accepts membership from reputable debt management centers. When you contact the NFCC, they can help you find a certified credit counseling agency in your area.

Before you refinance or consolidate your debt&#;

If you&#;re considering refinancing or consolidating your debt, it&#;s vital before making any restructuring decisions that you are committed to not borrowing any more money. If you refinance or consolidate your debt and start using your newly freed up credit card available balances, you could end up in even more debt than you started with.

Before you make any decisions to refinance or consolidate your debt, it&#;s important to get a good budget and spend-tracking plan into place, and to make sure that both you and your spouse are committed to spending within your budget so that your debt can get paid off as quickly as possible. Explore options like the debt snowball or debt avalanche for getting balances paid down quickly.

With proper planning and unwavering commitment, you can be debt free!

Read more: 5 crazy credit score myths

A better alternative to student loan debt relief companies

Welcome bonuses can be a great way to boost the value of a credit card.Best Credit Card Welcome Bonuses for If you're in the market for a new credit card, you may be hoping to cash in on the hundreds of dollars in signup bonuses offered to new customers. Welcome bonuses and offers are a marketing tool that credit card…
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Comments

  1. Card Ke liye request ki thi sab ho gya par last me invalid acct type likha aara ha Solutions batao

  2. Sir play store se state bank anywhere personal,aap he ata h.aur aap ne jo link deya h, usme se item not found.

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