Personal Finances

Refinancing and Consolidating Your Debts

Refinancing and consolidating loans usually have additional costs, which may not make them worth the costs. Buyer beware.

Refinancing/consolidating tips

When refinancing or consolidating (combining) loans, consider the following:

Do not combine lower-interest-rate loans into a higher-interest-rate consolidation loan. Be careful about consolidating short-term loans into longer-term loans, because this increases the costs in the long term. If you are consolidating short-term loans into a longer-term loan to improve current cash flow, accelerate payments as soon as you can on the longer loan to mitigate the additional cost. Consolidating loans often trades unsecured loans for secured loans, which can put the collateral (your home?) at risk. Refinancing and consolidating loans usually have additional costs, which may not make them worth the costs. Buyer beware. Refinancing and loan consolidation may be ways to reduce your monthly debt payments, leaving you adequate cash flow to meet your necessary expenses. They may also provide you enough slack to resume savings.

Another approach

There are those who take a different approach to their debts. Instead of consolidating them, they pay off certain ones first, and then apply the payments that would have gone to those debts to the other ones. This can provide a feeling of accomplishment that motivates them to continue paying down debts.

Disclosures