Too Much Debt

If you are like many people who find themselves with too much debt, you may need to consider refinancing. You might find yourself in a predicament where no matter how hard you try, you just cannot cut expenses any further or earn more income. The only solution is to lower your monthly debt payments.

Monthly loan payments can be reduced if a loan is refinanced with either a lower interest rate or longer payment period, or both.
Refinancing debt means simply changing the terms of the debt agreement. This means that an old debt is replaced with a new debt, usually for the same amount, but with different repayment terms such as a new interest rate and repayment period. Refinancing can help those who find themselves with excessive debt because it allows a loan to be repaid with lower monthly payments.

There are many reasons why some loans have lower interest rates than others. Long-term loans generally have higher rates than short-term loans. Secured loans also have lower interest rates than loans for which there is no collateral. A mortgage, for example, is a long-term, secured loan. If you follow mortgage rates, then you know that they are lower than the rate for an unsecured personal loan from your local bank or finance company.

Many persons with excessive debt usually have many short-term unsecured loans or credit card debts with high interest rates. This puts a burden on the family finances because there are too many monthly payments, leaving little left to pay for ordinary family expenditures. If these people refinanced their loans, they might be able to reduce their monthly payments so they could better manage their finances.

Some folks with high consumer debt—loans for things like cars, clothes, vacations, etc.—may also have equity in their homes. It might make sense for such persons to use the equity in their homes to consolidate their high-interest, unsecured consumer loans for low-interest, secured home equity loans. The result could be lower monthly payments and a tax break as well. Interest on consumer loans is not deductible from income for federal income tax purposes. However, interest on a home mortgage may be deductible—check with a tax advisor. So consolidating your consumer loans by refinancing your home could save you money and improve your cash flow.