Consolidating Debt and Refinancing

You have many options when you begin to struggle financially. Most people over look some of the more simple options you have such as refinancing and consolidating debt. There are also many things you should consider when you are looking into refinancing and debt consolidation. You need to be aware of all your options, when it should be considered, and the situations where it is ideal.

Options and Considerations

There are many options you have when looking to refinance. First of all, when you are looking to reduce your debts and make your monthly payments easier, you should look at refinancing your mortgage to include these other debts. Other debts you should consider when consolidating are those with a higher interest rate. Student loans with low interest rates or medical expenses with no interest should not be combined in a refinanced mortgage if you can pay the monthly payment without problem after refinancing. You should also be aware of the interest of the new loan versus the interest you may pay on the debts. For instance if you have a high interest rate debt that will be paid off in a year, you will probably spend less interest if you do not consolidate it with the new mortgage. When you are looking to consolidate debt with refinancing, you will want to try for a fixed rate mortgage that allows for a fixed interest rate rather than the adjustable rate interest that can change after a few years of the loan. It is best to calculate your options of loans. You will want to calculate the closing costs, the interest over time, and the principle balance to decide which option works best for you.

Situations That Are Ideal for Consolidating Debt and Refinancing

  • When you struggle with monthly payments
  • When interest rates are lower than your original mortgage
  • Before you have to file for bankruptcy
  • When you have higher interest rate debts that can be paid off through a lower interest rate loan.
  • When there are low closing costs or low interest rates

Financial stress can be a leading cause of other problems, so being aware of your options before heading to bankruptcy court is important. You will want to look at the costs of consolidating debts and refinancing before you decide that it is the best option for you. You will also want to make sure your credit scores are still in the "good" column or "fair" range to find the best refinancing available if you are struggling.

Even if you do not have a problem with your monthly payments, you can still consolidate your debts with the refinancing option. If you decide to refinance so you can have more income to save or for vacations, you will still want to follow some considerations before you refinance your mortgage. While it is important to lower your mortgage and other debt payments to benefit you, there are of course downsides, such as those discussed above.