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How To Refinance Your Credit Card Debt

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When Is Refinancing Your Mortgage Not A Good Idea

Refinance your credit card debt with a personal loan? | FinTips

As attractive as refinancing your mortgage may seem, its not the right answer for everyone. Here are a few reasons why refinancing may not be the right move:

  • Your home can become collateral on the debt
  • Closing costs on the refinancing can be costly
  • The length of time that youll be paying the loan off may increase
  • The amount youre financing could require you to pay private mortgage insurance

Taking From Your Retirement Account

While tapping into your nest egg may leave you without the hassle of dealing with creditors, this should be your option of last resort.

Under the Coronavirus Aid, Relief, and Economic Security Act, you can with draw up to $100,000 in 2020 from retirement plans, and have up to three years to pay taxes on the withdrawal. You won’t have to pay the 10 percent penalty if you’re younger than 59 1/2. You can also recontribute that money to your retirement account in one or more payments over three years. The recontributed amounts will not count toward the maximum contribution limit in the year that the funds are recontributed to a tax-deferred retirement account.

These rules apply only to those who have been affected by the coronavirus, which can lead to COVID-19. That could mean that people in your family have been ill from the disease, or that your business has had to close because of shutdown orders.

But be careful: Even if you are eligible to make penalty-free withdrawals, taking extra money out to pay off debt could put you in a higher tax bracket, Lehman adds. Instead, explore other options such as loans, equity or even borrowing from family members, he suggests.

Also, be careful to change the behaviors that contributed to the accumulation of debt in the first place. The last thing you want to do is take out a loan and end up running up your credit cards again, Gerstman says.

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How Refinancing Credit Card Debt Works

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Credit card debt adds upand Americans have a lot of it. As a country we hit $1 trillion in credit card debt at the start of 2018 and the average American household has approximately $8,788 in credit card debt.

The problem isnt just necessarily having , not if we pay it off on time each month. The problem is when we fall behind in our payments because of emergencies or expenses cropping up, then our credit card debt starts accruing interest and penalties. Those quickly get added to what we owe, and pretty soon the debt grows until it can seem insurmountable.

If you end up in that position, then refinancing credit card debt at a lower interest rate could help you take control of your debt so you can make progress toward eliminating it completely.

The average American household has approximately $8,788 in credit card debt.

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When Should You Refinance Debt

However, refinancing does have drawbacks. It isn’t free of cost and requires an appraisal, title search, and application fees. Usually, for mortgage refinancing, you should be prepared to pay between 3 percent and 6 percent of the outstanding principal in mortgage refinancing fees. The average closing cost in the U.S. was $5,749 including taxes . Most of the closing costs aren’t tax-deductible.

Just like the temperature outside, interest rates wont be this low forever. Jump ahead of future increases and refinance your home today! Bro N Sis Real Estate | NMLS# 1895260

Do I Have Enough Equity

How to Refinance Credit Card Debt and Pay It Off Faster ...

Since youll be using the equity in your home for a cash-out refinance, youll need to have enough to borrow while keeping some equity remaining in the home. This is a requirement of most mortgage lenders.

The amount of equity you leave in your home after you refinance is important because it affects your loan-to-value ratio. Your LTV determines whether you need private mortgage insurance, or PMI, which can cost you hundreds on your mortgage payment each month. If your LTV is higher than 80%, your lender may require you to pay this insurance.

Recent changes mean that you also have a hard time taking cash out if you have an LTV higher than 80%.In most cases, only borrowers using a VA cash-out refinance loan will be able to take cash out with LTVs higher than 80%. This is because the VA loan program allows qualified borrowers to use the equity in their homes even if its less than 20%. For VA loans specifically, you can cash out all of your existing equity if your credit score is 680 or better. Otherwise, you need to have an LTV no higher than 90%.

To see how a cash-out refinance could affect your LTV, follow the formulas below to calculate your numbers and compare.

To calculate your LTV before refinancing, divide your loan balance by the appraised value of your property. The formula looks like this:

Loan Balance / Appraised Property Value = LTV

Lets say your home is worth $200,000 and your loan balance is $140,000. Your LTV would be 70%.

Property value = $200,000

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Is Refinancing Credit Card Debt A Good Idea

Yes. Refinancing credit card debt is a good idea if youre with high interest credit card debt. The benefit of paying 11% interest on the debt versus 20% can add up to thousands in savings over time. Combing through the options and finding what best suits your financial situation can take time, but you must start somewhere.

Consider speaking with a nonprofit credit counselor to discuss what options will be best for you to alleviate and ultimately extinguish your credit card debt.

Refinance Credit Card Debt With A Balance Transfer

Many credit cards offer balance transfer rates at 0% APR to reel in new, hopefully long term, customers. There also could be a transfer fee of 1%-5% of the balance owed, which means youre adding to your debt, so factor that into your decision.

The 0% introductory rate usually lasts 12-18 months. This means you have a limited amount of time to reap the benefits of interest free debt. When the introductory window closes, youll be subject to a standard APR that can range between 18%-24%.

If you dont pay off your balance, or fail to at least put a dent in it, you will wind up right back where you started.

Quick word of advice if you get a 0% balance transfer card: Do not make new purchases with it! Youll be charged interest on anything you buy, unless your card comes with a promotional rate of 0% APR on purchases.

So, if you buy a $500 dishwasher with your new card, youll be charged interest on that $500. If you really need a new dishwasher, stick to debit card, cash or, if its urgent, a different credit card.

You should be wary of stacking debt onto your new credit card, even if it does come with a low rate on purchases. Remember, the only reason you got this card in the first place was to rid yourself of debt, not add to it.

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How To Use A Debt Consolidation Calculator To Attack Your Debt

When youre wading in a sea of debt, it can feel overwhelming to stay afloat. This debt consolidation calculator is designed to help determine if debt consolidation is right for you. Fill in your outstanding loan amounts, credit card balances and other debt. Then see what the monthly payment would be with a consolidated loan. Try adjusting the terms, loan types or rate until you find a debt consolidation plan that fits your goals and budget.

Should I Cancel My Credit Cards To Manage My Debt

WHEN Should You Refinance Credit Card Debt? How To Refinance Credit Card Debt.

When facing credit card debt, canceling your card may seem like a good idea to stop the cycle. While canceling your card will allow you to make payments on the debt without incurring new charges, doing so could negatively affect your credit score in a couple of ways. Consider the following credit score factors that could be impacted if you cancel your credit card to help with debt management:

  • Payment history: Even though the card is canceled, credit reporting agencies will still take stock of your payment history, which could significantly impact your score. Good payment history will continue to help your score, remaining on your report for 10 years. Any late payments will remain on your credit report for up to seven years.
  • Utilization rate: Closing a card reduces the amount of available credit you have without reducing the amount you owe. As a result, your credit utilization ratio, which you should aim to keep below 30%, will increase. This may negatively impact your amounts owed, which make up 30% of your credit score.
  • Mix of credit: The more diverse your lines of credit, the better your score could be, so canceling a card might not be helpful. If the card youre canceling is your only credit card, your mix of credit will be affected.
  • There’s more to canceling your card than simply cutting it up. Your cardholder agreement specifies how to officially close your account. In general, you should call the issuer and follow up with a written notice.

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    Borrow From A Retirement Account To Refinance Credit Card Debt

    Borrowing from your 401 to pay off credit card debt gives you an interest rate thats usually a point or two above prime and doesnt affect your credit without a lot of hoops to jump through. Still, it shouldnt be your first option, because, in the long run, youre giving yourself less retirement income.

    Pros of borrowing from your 401:

    • It doesnt affect your credit.
    • Interest is lower than most credit card rates.
    • Limit is 50% of account, up to $50,000.
    • Process is relatively hassle-free.

    Cons of borrowing from your 401:

    • Not all employers allow borrowing from 401.
    • Interest is taxed twice, now and when money is withdrawn upon retirement.
    • It reduces the amount available for retirement by not building interest.
    • If you leave your job, you have to pay it back immediately, or pay penalties and taxes.

    Refinance Credit Cards By Taking Out A Home Equity Loan

    If youre in financial distress and have equity in your house it may be beneficial to consolidate debt with a home equity loan.

    Before you even consider taking out a home equity loan, you must have equity on the house you own. Equity is the difference between what you owe on a home and what it is worth on todays market.

    You can borrow against that difference and repay it at a fixed rate that should be lower than what youd pay on a new credit card or unsecured personal loan. This loan is tied to your house, which serves as collateral.

    However, if you miss payments, the lender can take the house. The other negative aspect of a home equity loan is that it prolongs the amount of years it will take to pay off your house.

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    Ways To Refinance Your Debt And Save Money

    By Nick Clements, Next Avenue Contributor

    Interest rates remain near historic lows. While this is bad news for savers , its excellent news for borrowers. That’s especially true if you have high-interest debt, since you can refinance and lock in those low rates.

    Almost all types of debt can now be refinanced not just mortgages, but also car loans, student loans and credit cards. If you are retired, however, qualifying to refinance can be more challenging, though not impossible.

    Here is what you need to know if you want to refinance and save:

    1. Refinance a Mortgage

    Mortgage rates remain at near historic lows, so this could be an excellent time to refinance your home loan. As we have said on MagnifyMoney, if you want to lower your monthly mortgage payment or pay off your loan faster, it generally makes sense to refinance if you can reduce your rate by at least half a percent.

    Refinancing your mortgage can be particularly wise if you are one of the roughly 4.4 million retired homeowners who still have a home loan. Keeping debt payments low in retirement, when you dont have full-time employment income, is important.

    One example of todays attractive rates: PenFed, is offering 30-year fixed rate mortgages with no points at 3.375% APR.

    Here is how the math would work on a 30-year mortgage: Multiply your total retirement savings by 70% and divide by 360 . The result is the amount of your retirement savings that can be added to your monthly income on the mortgage application.

    Navigating Credit Card Debt During Covid

    2020 Should You Get an FHA Cash

    If the financial impact of the coronavirus pandemic has you looking for ways to consolidate your credit card debt, youre not alone. Many people may find themselves with more debt right now or may be facing debt issues theyve never encountered before.

    If that describes your situation, you may have more than one option.

    Weve compiled some resources to help you find relief measures announced by the government, credit card issuers and more. If you can take advantage of these relief measures, they may help ease some of your financial burden, making your debt more manageable. Check out our summaries of those resources below.

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    How And When Should You Refinance Your Debt

    The current mortgage rates are close to 3 percent. While the rates are higher than the beginning of 2021, they’re still close to historic lows. According to mortgage data company Black Knight, at the current rates, there are around 11.2 million well-qualified homeowners who could lower their mortgage interest rate by at least 0.75 percentage if they decided to refinance right now. How and when should you refinance your debt?

    Refinancing is when a debt holder pays off an existing debt only to replace it with a new one, usually with different terms. There could be a number of reasons for getting your debt refinanced but getting better terms is the most common reason.

    What Credit Score Do You Need To Take Out A Debt Consolidation Loan

    You dont need a perfect credit score for a debt consolidation loan, but the higher your score is, the more likely youll be able to qualify for a personal loan for the amount you need and at a favorable rate. Generally, it takes a score of at least 650 to qualify, and a score of 720 can make it more likely that youll qualify you for the best available APR.

    If youre below these thresholds, you can try a debt consolidation loan for bad credit borrowers or work on improving your score before applying.

    When youre ready to proceed with your loan application or balance transfer credit card, make sure you shop around. Rates, fees, terms, and eligibility requirements vary by provider, so comparing at least a few different lenders and credit card companies can ensure you get the best deal.

    Credible makes it easy to see your prequalified personal loan rates in minutes, without affecting your credit.

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    How To Choose Between Credit Card Refinancing And Balance Transfer Cards

    The right choice depends on your balances, interest rate, credit score, and other factors. Generally speaking, a balance transfer may be a good idea if:

    • You can qualify for a balance transfer card. You generally need good to excellent credit.
    • You can get 0% or a very low introductory rate.
    • The balance transfer fee is low.
    • You know you can pay off your balance before the introductory period ends.

    But in other situations, a personal loan makes more sense, especially if:

    • You think it will take you longer to pay off your balances.
    • You need a lower monthly payment.
    • Youre not able to qualify for a good balance transfer deal.
    • Adding a personal loan to your credit history could improve your mix of credit, an important factor in credit scores.

    Heres an example: Say you have $10,000 in credit card debt, and your bank is offering you a balance transfer card with a 0% interest rate for 18 months. Under these terms, youd need to pay at least $555 every month in order to pay off the balance before your introductory rate expires. If this isnt feasible, a personal loan may be a better option, offering you a longer payoff timeline and lower monthly payments.

    • You have excellent credit and can qualify for a lower rate.
    • You want a consistent, reliable payment for the long haul.
    • You want to consolidate other debts in addition to your credit cards.

    Lendingclub: Best For Peer

    Can I Refinance My Home To Pay Off Credit Card Debt?

    LendingClub’s online personal loan services allow borrowers with fair to good credit to obtain funding from a vast network of lenders. The bank holding platform began as a Facebook application in the early 2000s and has since grown into one of the top online lending platforms in the United States.

    LendingClub ranks highly for transparency with most of its users, thanks to the platform’s clear rates, charges, and loan terms. The lending service offers average interest rates and flexible loan amounts ranging from $1,000 to $40,000. You can also choose a three- to five-year repayment period, which means you can consolidate your debt and repay your creditors within 60 months.

    LendingClub’s three- or five-year repayment period is standard among many online lenders, though some borrowers prefer platforms with shorter windows to minimize interest or longer payback periods for lower monthly payments. The funding service also charges a 1%- to6%- origination fee to process your loan, plus 5% late fees and interest rates as high as 35% or above.

    Even so, LendingClub has several advantages. The service has a high consumer satisfaction rating and accepts applications from U.S. residents with a Social Security number or long-term visa and borrowers with higher credit scores can snag interest rates as low as 7.04%. After receiving approval for a loan, you can make use of LendingClub’s member center to learn more about budgeting, money management, and credit score maintenance.

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