Talk To Your Mortgage Provider
If you’re struggling to pay your mortgage, talk to your mortgage provider as soon as possible.
All lenders have programs to help you in tough times. Ask to speak to their hardship team about a hardship variation. They may be able to change your loan terms, or reduce or pause your repayments for a while.
Determine If You Qualify For Refinancing
Find out whether youd meet a lenders requirement for a refinancing. Capital One, for example, wont refinance loans for cars that are more than seven years old, and the payoff amount on your current loan must be between $7,500 and $50,000. Like many lenders, it also wont refinance a loan that it issued in the first place.
When Does It Make Sense To Use A Personal Loan To Consolidate Your Credit Card Debt
Personal loans which can be used as debt consolidation loans, depending on the lender tend to offer lower interest rates than credit cards. So, if youre juggling multiple credit card payments per month and paying high interest rates on that debt, it makes sense to consolidate your credit card debt into a single personal loan with a lower interest rate than what youre currently paying.
But keep in mind that most lenders typically have minimum loan amounts of $1,000 to $5,000. Because of this, personal loans may only be a good option if your debt lands within that range.
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What Other Debt Consolidation Options Do You Have
Beverly Harzog, credit card expert and author of The Debt Escape Plan, offers an alternative to personal loans for paying off debt.
If you have excellent credit scores, you may be better off getting a balance transfer credit card that offers a 0% introductory APR, Harzog notes. This way, you can pay off the debt without paying interest.
Of course, this is only true if you pay off your balance before the introductory APR period expires.
If your credit prevents you from qualifying for an introductory 0% APR, a personal loan may be a good option. But keep in mind that you still have to meet the lenders qualifications.
Your goal is to get an interest rate lower than the one youre currently paying on your credit cards, Harzog says.
Other debt consolidation options include applying for a home equity loan, taking out a retirement account loan or applying for a cash-out auto refinance. Be sure to weigh the pros and cons of each so that you pick the best option for your situation.
Consider Applying For Prequalification
Take some time to shop around and see which offers you may qualify for. Applying for prequalification can be a good place to start. To get prequalified, the lender will look at certain information, like your credit and type of vehicle. Prequalification is typically considered a soft inquiry, which wont hurt your credit all on its own. But prequalification is not a guarantee of approval, and if you decide to apply for the loan, youll ultimately have to apply for it and face the hard inquiry that goes along with it.
Check around with several lenders and compare the interest rates, loan terms and total cost of borrowing available to you. Find out if any of the loans qualify for an autopay discount. Opting into this feature may lower your interest rate and help ensure you dont forget a payment a win-win for you.
You may be tempted to choose an offer with a longer loan term, which could result in a lower monthly payment. But keep in mind youll end up paying more in interest and increase your risk of becoming upside down.
Above all, consider the main reason you want to refinance and whether each loans terms address that need.
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What Is A Personal Loan
A personal loan is one way for an individual consumer to borrow money. Typically, the borrower receives a lump sum payment from a lender and pays it back at a cost . For personal loans with an origination fee, the fee is often deducted from the principal loan amount, so the amount advanced to the borrower is the principal loan amount minus the origination fee. The borrower will typically repay the entire principal loan amount, which includes the origination fee. Payments are made in regular installments over the term of the loan. Many personal loans are unsecured loans, which means they do not require the consumer to pledge an asset as collateral.
Personal loans are typically structured as installment loans, which are paid off over a defined period of time. The loan amounts and terms can range broadly, depending on the state and the lender.
The interest rates for these personal loans are generally set by the lender and can vary depending on factors such as the borrowers creditworthiness and the amount and duration of the loan requested. Rates will usually be fixed for the life of the loan and calculated as an annual percentage rate .
Personal loans are used mainly for personal, family or household purposes, such as to cover unexpected expenses, pay for large home or auto purchases, or to consolidate debt.
Pay Off Your Old Loan And Start Making New Monthly Payments
Depending on your lender, much of the transition from your old loan to your new one can be taken care of by the lender. For example, your new lender might pay off your old loan. But be sure to reach out to your previous lender to get confirmation that its been paid in full before you stop making payments on that loan.
Once your original loan is paid off, you can focus on making on-time payments on your new loan each month, which may help boost your credit.
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Working With A Credit Counselor
Working with an accredited credit counselor is a good way to explore debt-relief options and decide what works best for you. Nonprofit credit counseling agencies offer free credit counseling, and counselors will go over your budget with you, evaluate debt consolidation alternatives and suggest solutions. There are also for-profit agencies that charge a fee for counseling.
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Choose Credit Card Refinancing If:
- You have good credit, particularly a credit score of 680 or higher.
- You can pay off what you owe on a 0% rate card in the 12-18 month introductory period.
- You get a high enough balance limit on the card to transfer all your high-interest cards to the new card.
- Your objective is to lower your monthly payment, giving you a better chance of paying everything off.
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A New Credit Card Application Could Interfere With The Process
Its a delicate set of equations that determines the amount you can afford to borrow, says Karrina Brown, an associate broker at Northern Virginia real estate services firm RE/MAX Executives. A big part of that calculation is your credit score, which can be negatively affected by new credit applications.
Brown confirmed that prospective homebuyers should avoid new credit card applications. Credit score would be one reason that you wouldnt want to take the risk, she says.
It helps to know a bit about the factors that affect your credit score. A new card could boost your score by adding to your overall credit limit, which helps lower your credit utilization. But it also can hurt, by lowering your overall age of accounts.
Applications can hurt your score, too, because each one can take a few points off your score. A lot of applications in a short time can add up to a lot of damage.
This should be of particular concern to credit card churners. Churners frequently open and close new cards to take advantage of discounts or limited-time promotions. Although most have good credit and may not be in danger of getting denied for a mortgage altogether, their hobby could translate to paying higher rates.
Churning cards could affect your scores by 100 points or more, Dan Green, publisher of online mortgage information source TheMortgageReports.com, says. He estimates that could bump up the rate you get by as much as a percentage point.
How A Credit Card Refinancing Loan Can Help
A credit card refinancing loan is a straightforward way to pay off one or multiple credit card balances in part, in full, and over a fixed period of time. When facing high-interest rate credit card debt, a personal loan could be the way to go.
With a credit card refinancing loan from Symple Loans, you can choose the amount you need to borrow and repayment terms that help you get on a path to paying off your debt sooner.
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Get Free Professional Advice
There’s free help available to help you get back on track.
Financial counsellors can help you make a plan and negotiate with your mortgage or credit providers.
Free legal advice is available at community legal centres and Legal Aid offices across Australia. If you’re facing legal action, contact them straight away.
How To Refinance Credit Card Debt
Weve already mentioned that there are different ways to refinance your credit card debt.
Some, like a balance transfer card, are revolving credit, but at a lower interest rate. Others, particularly loans, also have lower interest and can be used to pay off the cards. You then make fixed payments for a specific amount of time to pay off the loan.
Each method has pros and cons. The best option is the one that works best with your financial situation and saves you money.
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Impact On Your Credit Score
While everyones situation is different, applying for a new credit card shortly after closing on your mortgage does have the potential to lower your credit score. Adding a mortgage means youve opened new credit, increased your total amount owed, impacted your credit mix and decreased the length of your credit history. In addition, since its a new account, you have no payment history associated with it.
If someone just closed on a mortgage, they are impacting every factor that goes into their FICO score, Karetskiy said. So, its safe to say that adding a new credit card in addition to a new mortgage in a short time frame is likely going to decrease your scores.
Explore A Debt Management Plan
If you want debt consolidation options that dont require taking out a loan, applying for a new card or tapping into savings or retirement accounts, a debt management plan could be right for you. With a debt management plan, youll work with a nonprofit credit counseling agency to negotiate with creditors and draft a pay-off plan.
You close all credit card accounts and make one monthly payment to the agency, which pays the creditors. But you still receive all billing statements from your creditors, so its easy to track how fast your debt is being paid off. With a debt management plan, youll get some of the best debt consolidation loan rates and an end to over-limit and late fees if you pay as agreed.
Some agencies may work for low or no cost, if youre struggling. Stick with nonprofit agencies affiliated with the National Foundation for Credit Counseling or the Financial Counseling Association of America, and make sure your debt counselor is certified via the Council on Accreditation.
While youre on a debt management plan, you wont be able to reach for credit cards in a pinch because youll have to close all your accounts. This will lower your credit score. However, if you keep up with your payments and dont get deeper into debt, a debt management plan could help improve your credit score long-term.
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Ask A Friend Or Family Member For Help
Depending on how much money you owe and what your overall financial picture looks like, it may make sense to ask a friend of family member to lend you the money.
But if you opt for this method, its important to be sure the loan terms and repayment plan are clearly outlined, just as they would be if you were getting a loan from a financial institution.
Pros: When you borrow money from somebody you know, you dont have to meet minimum eligibility requirements to qualify for the loan, and you may be able to get a lower interest rate than you would from a bank or credit union.
Cons: Borrowing money from someone you know is tricky because it can put a strain on your relationship. Also, if youre unable to repay the loan on time, you might be putting their finances at risk.
Should You Consolidate Credit Card Debt Or Refinance
Weighing consolidating credit card debt vs. credit card refinancing often turns on timing and what your financial situation is. How long will it take you to pay off the debt if theres no interest compounded? What is your credit score and what are your assets?
If you cant imagine paying off a refinanced balance during the grace period, a debt consolidation loan probably is a better option. A consolidation loan allows you to pay off your credit card balances immediately and gives you the convenience of making a single monthly payment over an extended period. Unlike credit card debt, a consolidation loan allows you to pay off your balance within three to five years, or longer if you borrow against your home equity.
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You May Have To Pay A Penalty
Most car loans have prepayment penalties or other fees that youll incur if you pay off your loan early and to go to another lender. And that may determine whether its worth refinancing, says Ryan Mohr, owner of Clarity Capital Management, a Oregon-based fee-only planning and investment firm.
The only way to determine how all of these factors will affect your decision to refinance is to do your homework. No matter how new your loan is, periodically check refinancing offers, especially if interest rates are declining or your credit rating, income or other circumstances have changed.
Your Credit Score Has Improved
Even within the first 12 months or so, your credit score may have improved enough to make you eligible for a significantly lower rate. Perhaps you corrected a mistake on your credit report or paid off most of your outstanding debt. Maybe youve demonstrated that youre responsible by paying all of your bills on time, or youve had a big increase in income. Whatever the reason, an improved credit score can make getting a better loan deal far easier.
How Can We Refinance $14k In Credit Card Debt
Q. We want to refinance $14,000 in credit card debt. How can we do that?
Drowning in it
A. Congratulations on your journey to becoming free of
How you consolidate your debt will depend on how much debt you have overall, your credit score and other factors, such as your payment history.
Consolidating your credit card debt works if the new debt has a lower annual percentage rate than what you have now, said Betty Thomas, a chartered financial consultant and certified financial planner with Peapack Private Wealth Management in New Providence.
The move could reduce your interest costs, make the payments more manageable and possibly shorten the payoff period, she said.
One option to consider is a debt consolidation loan, also known as a personal loan. It is an opportunity to consolidate the full amount of credit card debt into one loan, Thomas said.
You would have a fixed monthly payment based on the interest rate and term of the loan, she said. At the end of the loan term, the debt would be paid off. This would save money on interest charges.
Thomas said the average interest rate charged on credit cards is around 16%, so the rate on a consolidation loan should be lower.
Its important to know that the lender may determine the interest rate by the term of the loan you are requesting and your credit score. Therefore, it is important to know your credit score, she said. The better your credit score, the better the interest rates offered to you.
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% Apr Offers On Credit Cards
Many credit cards offer an introductory offer of 0% APR on balance transfers for a limited amount of time after opening the card. While they still may be subject to balance transfer fees , they often offer 0% introductory periods between twelve and eighteen months to not worry about the balance accruing any additional interest.
The Citi® Diamond Preferred® Card, for example, is an excellent option for those considering taking this route. It comes with a respectable 0% intro APR for 21 months on eligible balance transfers from the date of the first transfer and 0% intro APR for 12 months on purchases from date of account opening. After that the variable APR will be 13.74% – 23.74% based on your creditworthiness. Balance transfers must be completed within 4 months of account opening. There is a balance transfer fee of either $5 or 5% of the amount of each transfer, whichever is greater. The downside is being capped at the allotted credit limit given by Citi.
Keep in mind that its recommended that you have good to excellent credit if youre considering applying for a credit card that offers a 0% introductory period.
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