Tricks and Tips for Decreasing Debt
Many homeowners look into refinancing a mortgage as a method of debt consolidation, opting to pay off high-interest debt with the equity in their home. But lenders can be strict about “cash-out” refinancing and typically only allow the borrowers to take out a mortgage for a maximum of 90% to 95% of the home value. If you have enough equity to pay off debt and still qualify for a new home loan, a cash-out refinance may be a good solution for your debt problems. Just remember to stay disciplined and not accumulate additional debt.
If a cash-out refinance is not an option, refinancing your home may still be a good choice for decreasing your debt. If your home refinance results in lower mortgage payments you can use the savings to pay down other debt faster.
Some homeowners may find that they cannot qualify yet for a mortgage refinance because of a low credit score or a high debt-to-income ratio. In this case, the homeowners should develop a program for decreasing debt and reapply for a home refinance once they have improved their credit rating and reduced their debt.
Decreasing Debt: Create a Plan that Works for You
Highly disciplined homeowners may be able to create their own debt management plan, ranking their debt and choosing which one to pay off in full first.
When developing a debt management plan, it’s important to first get a clear picture of your debts. Some experts advise paying off smallest debts first to free up money to tackle larger debts and stay motivated. Others advise focusing on your high-interest debts first to minimize the amount of money spend on interest payments. Whichever route you choose, you need to develop a payment plan that fits into your budget and set realistic goals.
If you lack the discipline to stick to your own program, you may find it useful to sign up for a paid plan that helps you prioritize your debt reduction and motivates you to say on track. The three major credit bureaus may offer plans that can help you manage your debt. In addition to helping you monitor your credit score, you can use online plans to help you evaluate and track your debt to make sure you stay on top of your monthly payments and are making progress toward your goals.
Whether you need a paid debt management program or can dig your way out of debt on your own, be sure to ask a lender about the option of refinancing as financial management tool.
