Even people with the best credit score and a good income may at some point carry outstanding debt, either in the way of credit card debt, car loans, or even loans to renovate their home.
If you find yourself in a situation where you have several different debts at once and you are tired of managing multiple payments with varying interest rates then consider applying for a loan to refinance your debt into one loan.
This works especially well for people that have a steady income and a decent credit score. By refinancing your existing debt you will be able to pay off what you owe in a timely manner, and pay less interest.
Here are the advantages of refinancing your debt:
1. One Payment
By making one payment each month instead of multiple payments you will be paying less each month. This will allow you to take the extra money that you use to apply to your loans and put it into a savings account.
2. Lower Interest Rate
You will find that the interest rate on your loan is much lower than your credit cards. So instead of simply paying off interest every month you will be able to pay down the actual debt owing.
Things to Consider
Seeing a zero balance on your credit cards may lead you to think you have more money than you actually do – this can be a big temptation. In fact, if you begin spending and racking up more debt, you may find yourself in a very difficult financial position that will be tough to dig out of.
The real trick to making this work to your advantage though is to stop using your credit cards once you have this new loan in place. Either cut up your credit cards or freeze them. Do not apply for any new car loans or lines of credit either. Use this as a time to re-adjust your spending and work towards becoming debt free.