9 Things to Know About Debt Refinancing

It’s tempting to consider debt refinancing when you’re overwhelmed and struggling to pay your bills. The wrong deal can hurt more than it helps. If you’re considering debt refinancing options, seek expert financial advice.

Keep reading for nine things to know about refinancing your debt.

1. Debt Refinancing Doesn’t Eliminate Date

Debt refinancing is consolidating debt down to one payment. Based on the amount of debt you have, the interest rate, and the term of the loan, you could end up paying more.

If you’re a business owner looking to take on a new project, but outstanding debt is getting in the way, look into the SBA 504 program.

2. Don’t Refinance While Under Duress

Entertaining calls from debt collectors is overwhelming. They can push you towards refinancing your debt to pay them. Their only goal is to collect on the debt, not to help you with financial planning.

3. Refinancing Is Not a Solution to Getting More Debt

Never look at refinancing as a solution to getting out of debt. You’ll relieve the stress of having a lot of monthly bills but at a cost. If getting out of debt fast is the goal, consider a temporary second job.

4. Be Mindful if Interest Rates

Interest rates and repayment terms determine if refinancing is the best option. Never refinance debt at a higher rate.

5. Be Aware of Refinancing Scams

In today’s hot housing market, refinancing scams are at an all-time high. If the loan terms sound too good to be true, it probably is.

6. Avoid Refinancing With the Same Company

Refinancing with the same company as an existing debt could mean bypassing better financing options. Always shop around.

7. Consider a Second Mortgage Over Refinancing an Existing Mortgage

Too often, homeowners refinance their existing homes and use the equity to pay off outstanding bills. A wiser option is to take out a second mortgage. This way, you’re not increasing the monthly payment on your first mortgage.

In addition, the repayment period on the first mortgage isn’t extended, and you can pay off the home on schedule.

8. Understand the Cost of Refinancing

Not everyone is good at calculating interest on their outstanding debt. The lack of knowledge can lead to you paying more when refinancing your debt. Figure out how much interest you’ll pay to eliminate your existing debt.

Next, compare it to the repayment schedule on the refinancing option. You may be surprised to learn it isn’t that great of a deal.

9. Home Refinancing Comes With a Cancellation Window

Remember you have a three-day period to cancel the loan when you decide to follow through with a home refinancing loan. The rule applies to loans where the home is used for collateral.

Work Towards a Debt-free Life

Debt refinancing isn’t always about second mortgages or long-term debt consolidation loans. You can also devise a plan to pay off your debt by decreasing credit card usage and paying additional amounts on at least one monthly bill.

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