Should You Refinance Your Debt?
When you're wading through a sea of debt, it feels good to still afloat. If you have more than one loan, it may a great thought to combine them into one consolidated debt. (moneysmart.gov.au)
The debt refinancing calculator is designed to help you determine whether debt consolidation is right for you. Fill in the amount you owe on your mortgage, credit card balance and other outstanding debts. Then see how much you are paying month by month with a consolidation loan. Try to adjust the terms, type or level of your loan until you find a debt consolidation plan that fits your goals and budget.
Refinancing Debts Definition
What is debt refinancing? This is the replacement of current debt with another debt capability with more favorable terms and/or conditions. In other words, debt refinancing focuses on replacing existing debt with new debt. Refinancing debt is usually used to take advantage of new financing that provides additional profitable terms and/or conditions. In such a situation, the person or company will repay its current debt by issuing new debt on more favorable terms or conditions.
How Debt Consolidation Works
Debt consolidation is meant to make paying your debts more affordable month after month. But how do they work?
The goal of debt consolidation is to pay off high-interest debt by finding low-interest debt. And it's usually a good idea to pay as little interest as possible on the debt you're holding.
High-interest debt usually comes from sources of unsecured loans, such as credit cards and personal loans. “Unsecured” means the lender has no collateral to cover losses, if you fail to pay your debts. (Unlike a mortgage, which is "secured" through your home.)
It's easy to get over your head with multiple high interest payments to lenders that vary each month.
Combining debt by rolling out your outstanding balance into a low-interest mortgage can simplify things, and save you a lot of money.
Debt consolidation is especially beneficial if you have a constant and predictable income, and would rather make your monthly payments more affordable.
How to Refinance to Pay off Your Debt
If you need to refinance a loan, you should first check the details of your current debt agreement to understand how much you actually paid. You should also test if there is a prepayment penalty on your current loan, as refinancing prices may exceed early termination fees. Once you know your current loan value, you can compare several lenders to find the terms that best suit your economic goals.
Are you looking to change your long term debt? Or reduce the interest rate? A wide variety of loan options are available in today's market. With new online lenders looking to compete with traditional banks, there are services and packages that are tailored for all monetary purposes. For the most qualified borrowers, these competitions can help bring down borrowing costs by the hundreds or thousands.
Ways to Refinancing Debt Consolidation Loan
1. Make sure it is the right choice for you
Explain why you want to refinance a debt. Ideally, consolidating your debts means managing your finances better. But if you're looking for a way to refinance credit card debt, you might prefer changing your spending habits.
2. Count all expenses related to your existing debts
To ensure that debt refinancing will be beneficial, you should be aware of all the costs associated with each loan. Write down your personal payment amount, interest rate on the loan, and any fees associated with your current debt.
3. Find out how much cash you can loan
Once you've worked out your total loan mix, test to see if you can actually borrow the amount you need. As a first step, it's a good idea to talk to your current home loan company, as they might be able to evaluate your loan, and offer you a better deal. To start, use a loan strength calculator, to find out how likely you are to borrow.
4. Compare the different loans
If you're looking to switch to a new home loan, you need to make sure you're actually getting a better deal – because the idea is to save money and pay off your debt. Look for a blend of low interest rates and minimal fees. If account offsets and redrawing services are particularly important to you, make sure they are available with your new loan.
5. Know the cost of refinancing debt
Your existing loan may also be subject to an exit fee, if you pay it off early. There will also be fees associated with opening new loans. Check with your lender for a complete list of the costs you need to budget for, and determine if the upfront costs will pay off in the long run.
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