How to Know if Refinancing is Right for You

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If you are trying to get your budget in order, one area that you may consider is refinancing any debt you have. Debt can be a real drain on your budget. It is possible to save a good deal of money by refinancing, but first, you should decide if it makes sense for your situation.

Student Loan Debt

Refinancing student loan debt can save you thousands of dollars over the repayment period of your loans. There are a few different ways you can handle your student loans. You can keep the amount of your monthly payment the same, paying off your loans more quickly, or you can lower your monthly payment, which frees up money in your budget. Lowering your monthly payment can be particularly valuable if you are interested in buying a home soon. Lowering your monthly expenses creates a better debt to income ratio, which makes you more attractive to lenders. There are no fees associated with refinancing your student loans, so you have nothing to lose by investigating how much money you could save by doing so. Unlike a mortgage or auto loan, which often comes with application or origination fees, or prepayment penalties, refinancing student loans is a straightforward process.

Mortgages

Refinancing your mortgage can be a great way to save money over the length of your loan. Unlike student loans, there are expenses associated with refinancing a mortgage so you will want to make sure it makes good economic sense before doing so. If you plan to move within the next few years, staying in your current mortgage probably makes good sense. In general, start looking at refinancing when you could save at least one percentage point in interest on your loan. If you have built up enough equity to drop your private mortgage insurance, then refinancing is a smart move. When considering, you may have the choice of switching the terms of your loan. For example, if interest rates have dropped sufficiently, you may be able to switch from a 30-year fixed rate mortgage to a 15-year fixed rate mortgage without making much of a change to your monthly payment. As you can imagine, the money you save in interest is significant.

Credit Card Debt

If you have credit card debt, you should make paying that off a priority when you are trying to gain control of your finances. If your credit is in decent shape, you may qualify for a personal loan. You can get a loan for the total amount of credit card debt, pay off your cards, and then only have the loan payment. If you can secure an interest rate lower than what you are paying on your credit cards, this can be a great option. Another choice is to use a balance transfer to transfer your credit card debt onto a new card. If you have a solid credit score you can probably find a card that will offer zero percent interest for a period, such as 12 or 18 months. Prioritize paying off the card during this introductory phase.

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