“What’s Refinancing Anyway? And How Can It Help You?”
Hello friends with debt! Let’s dive into a topic you might have heard about, but not fully grasped—Refinancing. If you’re like me, you may initially associate this term with something suspicious or scammy—I suppose too many flashy ads are to blame. But after doing ample research, I’ve realized that refinancing can actually be a real lifesaver for many of us.
So, why should we even talk about refinancing? Well, if you’re someone with minor debt, say under $1,000, you probably don’t need to worry. But let’s consider that many folks today are shouldering much heavier loads of debt, even in the realm of tens or hundreds of thousands. That’s when the cruel cycle of interest rates kicks in.
Understanding interest rates can be quite straightforward. If you owe money—it gathers interest, which is essentially the cost of having borrowed that money. It’s why mortgages and student loans often have lower interest rates compared to credit cards or car loans—the banks need it to be affordable for borrowers as these loans can stretch across decades.
Take for instance, my two frequently used credit cards—each with APRs of around 15%. Now, that might seem like nothing when considered in terms of a $100 debt. But once we’re talking about a few grand, suddenly, I’m shelling out several hundreds just in interest! The problem arises when you’re only able to make minimum payments because it leads to an endless cycle of interest-accumulating debt.
Now, when stuck in this painful debt spiral, getting out might require more than just pinching pennies or busting your chops with a second job. Enter refinancing—the Superman in this scenario.
In simple terms, when you refinance, a company will pay off your existing debt. Now, you owe money just to this company instead, often at a lower interest rate. Sounds good, right? However, if most of your debt comes from low-interest loans like mortgages or government-backed student loans, then refinancing might not be the most beneficial route for you.
But if high-interest debts like those from credit cards, car loans, or private loans make up your debt mountain, then refinancing is an avenue worth exploring. Personally, I used EVEN Financial’s loan calculator to figure out how much I could save if I refinanced a $5,000 credit card debt. Turns out, with my good credit rating, my monthly payments would’ve gone down to below $88, and the interest rate to just 4.04%. Even with a fair credit rating, the deal was much better than my existing situation.
Bottom line— if you’re buried under high-interest debt, you should consider learning more about refinancing. EVEN Financial and other similar companies make this process a breeze. Has anyone tried refinancing their loans? How much did it help you cut down your debt? Looking forward to hearing your stories!