When bills mount up to formiddable levels, it may be time for you to think about refinancing. Here are a few tips.
If you find yourself in this situation, you may want to consider the strategy of refinancing a higher interest personal credit account or loan. Basically, refinancing means that you restructure existing debt to get a lower interest rate, a longer payment plan, or smaller payments. Refinancing can be a blessing during times of financial duress.
Let's say, for example, that you bought your home a few years ago with a 6.75 percent mortgage financing rate. Then last year the interest rates fell to five percent and you refinanced your mortgage at the lower rate. Now your payments are a hundred dollars a month cheaper and you will save tens of thousands of dollars over the life of the loan. Those are the benefits of refinancing a mortgage.
Credit accounts can be refinanced, too. Perhaps you have a $10,000 credit card balance at 13.9%. You receive a credit card application in the mail for an introductory zero percent rate for three months, followed by a ten percent interest rate for the life of the loan. Calling the company to verify this offer, you find there is a $35 transfer fee but no other expenses. Is it worth it to refinance your current debt? You bet it is! Figure the difference in payment and interest on $10,000 from 13.9 to 10%, nearly a four percent reduction.
Refinancing brings other less tangible benefits as well. If you are in danger of missing a monthly payment because your budget is too tight or your employment hours have been cut, refinancing can reduce payments and give you some breathing room each month. Not only will you continue making payments as scheduled, your credit rating will maintain a positive rank because you're not missing payments.
The only danger to refinancing is that with a lower payment on existing debt, you may be tempted to spend the saved money on things you don't need. Or worse, you may be tempted to open another credit account, figuring you can always refinance that one too if it gets out of hand. Another possible limitation is that you may not be approved for a refinanced account if the creditor feels you are a poor risk.
Overall, refinancing generally works well for all involved. Banks like it because their offers attract new customers. Account vendors appreciate it because it helps them receive their payments. And customers benefit because they retain a good credit rating and feel less budgetary strain. If you're in a financial pinch, ask your bank or lending institution about a refinancing plan to meet your needs. It just may be the lifesaver you need. And if not, well at least you tried.
