Homes, higher education, and vehicles are popular purchases that often require a loan. But they are not the only loans and debt you can refinance.
Credit cards can get you into trouble quickly since their interest rates are double digits. When your rates are in the 20 to 40 percent range, it can be difficult to pay off the principal balance.
Fortunately, you can get a personal loan to pay off your credit cards. Just like refinance rates, the interest on your new loan will be much lower.
You can also cut down on the number of payments you make each month with a personal loan. Rather than having a payment for each of your credit cards, you can consolidate your debt into one loan and, therefore, one payment.
Likewise, you can consolidate all of your debt into one monthly payment. Consider the following example:
· You have three credit cards with balances of $4,000, $3,000, and $1,000. The interest rates on these cards are 18, 20, and 22 percent. The minimum balance you must pay is $117, $91, and $32.
· You have a student loan for $8,000 at 3.8 percent and another for $12,000 at 6.8 percent. You must pay $180 and $287 each month.
· Your interest rate on your car loan is 5 percent for the next 48 months, and the remaining balance is $20,000. Your monthly payment is $461.
Instead of paying a total of $1,168 for six different accounts, you can refinance and consolidate all of the accounts with a higher interest rate.
If you are able to find a lender who will charge you 6 percent interest for $20,000, paying off your three credit cards and the higher student loan would save you $58 a month and $3,509 over 60 months. It would also reduce the number of payments you make in half.