When you think about saving money, getting a new loan is probably not the first thing that comes to mind. After all, doesn’t that sound like just going further into debt? However, taking out or refinancing loans can be ways to save money. The key is in finding interest rates that are lower than what you are already paying.
Consolidate Your Debts
If you have a credit card, there is a good chance you are paying high interest rates on it. You may have other debts as well, such as medical debts, that you are struggling to pay. In addition to the interest rates, it can be difficult to keep up with when they all have different due dates and different minimum payments. For all of these reasons, taking out a single loan with a lower interest rate to pay off all these debts can be a smart financial move.
There are several ways to consolidate your debts. You might get an offer of a credit card with a 0% interest rate for a certain period of time. This can be a great idea if you can pay it off within that time and disastrous if you cannot. These types of cards often have very high interest rates when they do increase, and in some cases, they may apply interest retroactively. Another option is seeking a personal loan from your bank or a credit union.
Borrow Against Your Home or Retirement
This is another type of debt consolidation. You can take out a home equity loan, or if you have a 401(k) account, you can borrow against it. However, both of these options come with some risk. A second mortgage adds another lien against your property, while a significant portion of your retirement account could be lost if you struggle to pay back the balance. That risk does not mean that they are never a good idea, but it does mean you should carefully weigh that risk against the benefits.
Refinancing Student Loans
You can refinance your student loans at a lower interest rate and save money if they are private or federal, even if you have already consolidated or refinanced them in the past. You should look around to find the best deal. You generally need to have a good income and solid credit. Some lenders may allow a cosigner for a refinance if you’ve had credit issues in the past, in order to gain approval.
Refinance Your Home
With interest rates continuing to decline, now may be a good time to refinance your existing mortgage. By securing a lower interest rate you can save significantly each month that can add up to tens of thousands over the life of the loan. Keep in mind that qualifying for a refinance can be lengthy, with the need to provide income and asset documents, as well as meet credit requirements to secure the best rate available. There are closing costs associated, so provided you plan on staying in the property for the next few years, the savings each month will eventually pay for itself over time.
