If you’re living paycheck to paycheck or simply don’t have enough saved for an emergency fund, the last thing you probably want to think about is taking on another loan and being even further away from financial independence. And you’re not alone: According to the Federal Reserve Bank of New York, consumer debt rose to $12.73 trillion in the first quarter of 2017.
But taking on a loan often isn’t a bad move: It can help you achieve a higher education (and income), build personal wealth by investing in a home or give you peace of mind on the off chance you encounter an unforeseen emergency.
Whether you want to lower a monthly loan payment to free up some of your budget for other costs, pay your debt off faster or see if you qualify for a lower interest rate on your current debt, there are plenty of flexible options out there to help you with almost any financial goal you have in mind.
Modify Your Debt to Fit Your Budget with a Personal Loan
There are several times when it makes sense to consolidate your debt with a personal loan. Debt consolidation is just another way to say, “Pay off and replace one or more debts with a single loan.”
Here are some popular reasons people choose to consolidate their debt:
- Make a single payment each month: Instead of remembering to make multiple credit card payments every month, you’ll only have to make one.
- Get rid of high-interest debt: You might be able to receive a lower interest rate on a personal loan than the rate your credit card offers. Rates vary case by case, but you’ll be able to save if you can get a lower rate, so it’s never a bad idea to check out your options.
- Pay off your debt faster: Instead of paying the minimum balance, personal loans help you choose a repayment plan that fits your budget to get you out of credit card debt within a few years.
- Lower a monthly payment: If lowering your monthly payment is your top financial goal, most lenders offer flexible repayment options that let you borrow for five or more years and lower the amount you owe each month.
- Move debt from revolving credit card to an installment loan
Installment loans, like a personal loan, have a smaller impact on your utilization score since they are allotted in a predetermined amount. Revolving debt, like the debt on a credit card, allows you to use as much of your credit limit as you’d like, which has a bigger impact on your credit score. Moving debt from a revolving line to an installment loan may be one way to bump up your credit score a little bit.
Refinance Your Mortgage
Refinancing your existing mortgage might be the right move since market rates are low. Refinancing to a lower rate or monthly payment will widen your budget to help you save or fund some of your other personal goals. If your goal is to save in total lifetime interest, refinancing your mortgage to a shorter term could help you do this while paying off your home faster.
Another type of popular mortgage refinance is a cash-out refi. A cash-out refinance lets you take the equity you’ve earned and turn it into cash.
Refinance Your Student Loans
Much like other types of loan refinancing, student loan refinancing can lower your interest rate, your monthly payment or both. There are other benefits student loan refinancing can offer, too – like moving your debt from a variable rate to a fixed rate so your rate is locked in place and doesn’t change with the market. No matter what your financial goal is, make sure to calculate your potential savings and shop around for the term and rate that make the most sense for your lifestyle.
Consider Investing in Your Home
A home improvement personal loan could be just what you’re looking for if you want to increase the value of your home. A few home renovations that offer the best return on investment include renovating your basement, attic, kitchen or bathroom. If you’d like to see which projects are good investments for where you live, check out this cost vs. value report.
Don’t Get Discouraged
You may not qualify for the lowest rate or highest amount advertised by a lender right off the bat, but with the right planning and budgeting, you might be able to improve your chances of qualifying for your ideal amount or rate over time. Most lenders do a soft pull on your credit when determining your eligibility for a loan, so if you want to see if your options have improved since the first time you applied, you can usually do so without harming your score. Before you fill out the online form to see if your offers have improved, be sure to check the lender’s website to ensure that they are only doing a soft pull on your credit.
Here are a few quick tips to improve your credit as well as your chances of qualifying for a better amount, term or rate:
- Never miss a payment: Your payment history makes up the bulk of your credit score. One of the most foolproof ways to assure your payments are made on time is to automate them by choosing ACH (Automated Clearing House) as your monthly payment option.
- Keep your oldest line of credit open: Lenders use the history of your credit line to predict how you will perform in the future, so something as simple as how long you’ve had a credit line open has an impact on your score.
- Keep you credit utilization score under 30%: Keeping the amount you owe vs. how much your credit line lets you borrow under 30% is another way to keep your score in check. If your utilization rate is above this, some feasible ways to improve it when you aren’t able to pay some off right away is to move part of the debt onto another card or contact your credit card company to see if they will raise your credit limit, which will inherently improve your rate.
- Never stop educating yourself: Learn everything you can about finances and your debt. This will keep your debt top of mind and help you become financially savvy, tackle your debt, and save the most time and money along the way.
What are some of the best moves you’ve made to improve your finances? Let us know in the comments below!
Source: Home Loans