UFCU-SPONSORED CONTENT – Every few years, it’s a good idea to check current interest rates for borrowing money to see how yours compare. If your financial conditions have improved since you borrowed money – be it a credit card, mortgage, or other debt – consolidation or refinancing may be for you. Even if your circumstances haven’t improved, interest rates are at historical lows and you may be able to get better rates and lower your monthly payment. Read on for three actions that can help make your debt more manageable.
1. Refinance your debt
Refinancing means replacing a current loan with a new one. The new loan pays off the old loan and you start over with new payment terms. Refinancing is a good option if the new interest rate is at least one point lower than your current interest rate. This difference can affect your monthly payment as well as the total interest you pay over the life of the loan. There are often costs associated with refinancing. Make sure to ask about your options for either prepaying the fees or including them in the total of the new loan.
2. Consolidate your debt
Consolidating debt means combining multiple loans into one. The new consolidated loan often has a lower interest rate. The advantage of a consolidated loan is that you only have to make one payment, unlike multiple payments for many loans. This allows you to better manage your budget and ensure that you get the best rates and payment terms to pay off your debt. This is a great option if you have multiple high-yield loans or credit cards that you can restructure with a lower interest rate.
3. Transfer your debt
This is called a balance transfer and is used for credit card debt. With a balance transfer, you move the total balance of what you owe from one card to a new one with a low APR or 0% APR. This is a strategic way to pay off high-interest debt and save a lot of money on interest charges. There are costs associated with balance transfers, typically 3% to 5% of the total amount transferred. The lower interest often has a time limit, such as 21 months of 0% APR. This is a good option if you can commit to not using the new credit card and pay the total amount within the given time frame.
While interest rates are just one factor in debt reduction, they can be a powerful tool that you can control. Keep track of interest rates – getting yours as low as possible will add to your peace of mind.
If you’re looking for additional financial tips and resources to better plan, spend, save, and borrow, visit PlanU by UFCU. You will find options that range from talking to a financial health expert to creating a personalized information center to meet your needs.