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12 Things To Know About Managing Debt Through Refinancing



Living with debt is a common experience, and you can take control of your finances. Many people feel overwhelmed when they think about managing their debt and building a strong financial foundation. Taking steps to pay off your debt is important for making progress toward your other life goals. Debt can weigh you down and add stress to relationships, but smart debt management decisions can set you up for success. Consider the following points about refinancing as you create a debt management plan.

1. Pay Off Education Loans

A substantial percentage of college graduates enter the next chapter of their adult lives in debt. The cost of higher education is attainable through loans for many young people. Talk to your lender about student loan refinance options to optimize interest rates and possibly extend the repayment schedule as you climb the career ladder.

2. Leverage Your Existing Mortgage

Homeowners can refinance their mortgages to pay off debt. There is more than one model of mortgage refinancing, and they all ease the pressure on your bank account. You can use refinancing as a tool to help pay off credit card debt or other loans. Think about creating cash flow for monthly medical, student, and car loan payments.

3. Build Equity

Put in some work to build equity and increase the value of your home before you apply for mortgage refinancing. Different lenders and varying requirements for access to equity. You may be able to use equity to make loan payments in cash.

4. Provide Proof Of Income

Refinancing applications require proof of income. Save pay stubs and other proof of employment so that you can make the strongest case with your lenders. Refinancing your mortgage is more likely to be approved if you have a well-established steady income or an increased salary.

5. Optimize Your Debt-To-Income Ratio

Your debt-to-income ratio is based on the amount of your monthly income compared to how much you owe each month. The items that you owe include your existing home payment and credit card. Any other debts also factor into this ratio. Increase the amount that you earn each month and decrease the amount that you owe in order to achieve a better ratio.

6. Protect Your Credit Score

Your credit score is important for the refinancing application, too. The score reflects how consistently you are able to pay off your existing debts. Typically, the most common type of home refinancing requires a minimum of a 620 credit score.

7. Budget for Closing Costs

A refinanced mortgage will have closing costs, just like when you first purchased the home. This is the cost of your access to cash. Generally, closing costs for refinancing are 2-5% of the total amended loan. This should balance favorably with lower interest rates.

8. Take Advantage of Low-Interest Rates

Watch interest rate trends for new mortgages. You may want to refinance when interest rates are lower than they were when you bought your property. Lower interest rates can give you more financial flexibility over time.

9. Streamline Refinance Government-Insured Loans

VA streamline refinancing and FHA refinancing may be available for some recipients of government-insured mortgages. This can be an accessible debt consolidation option for people who want to avoid closing costs and a new home appraisal.

10. Consider Rate-and-Term Refinancing

Rate-and-term refinancing is a long-term plan for financial freedom. Your existing loan is paid off before establishing a different loan term or interest rate on an entirely new loan.

11. Consolidate Your Debt

Cash-out refinancing is the option that pulls cash from your home equity line to pay off other debts, like credit cards. You then consolidate those debts under your mortgage and pay them off at that interest rate, which may be lower than continuing to make payments on existing credit card debt.

12. Forecast Your Financial Future

Go beyond this period’s paycheck and project your expected monthly income. Forecast out for several years to decide whether you should refinance now.

Start your debt management plan today.


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