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How Can Refinancing Help Pay off Your Debts Quickly?

People sometimes struggle with debts, leading to tremendous financial worries. Some may feel concerned about facing creditor lawsuits or the daunting task of going to a federal bankruptcy court. Each person’s situation has its differences, but many debtors might find workable solutions. One strategy involves refinancing a mortgage and using the new loan to tackle debt obligations.

Refinancing A Mortgage

“Refinancing” denotes the process of taking out a new loan to pay off an existing one. So, someone who refinances a mortgage usually seeks a new mortgage with a lower interest rate. The lower interest rate makes the new loan less expensive.

Mortgage Refinancing for Debt Consolidation

Not everyone interested in refinancing an old mortgage has money troubles derived from a costly home loan. The mortgage holder may struggle with a credit card and student loan debt. The person might have enough equity in the home to consolidate these debts into one more manageable loan. Of course, some debtors may struggle with a costly mortgage, along with credit cards and other debts. A new mortgage might consolidate all these problems into a more workable loan.

Some Fiscal Points about Debt Consolidation

Here’s an example of someone dealing with troubling credit card debt. The person may have $15,0000 in credit card debt on accounts with high interest rates. One card may carry a balance of $6,000 and a 20.4% APR. The current mortgage balance might be $75,000 on a home worth $190,000. So, the person takes out a new mortgage at $90,000 at 3.9%. 

Moving the high-interest balances to a new loan with a far lower balance could save the mortgage holder significant sums. Ironically, the money directed towards the high-interest payments may go towards paying the new mortgage balance faster.

Choosing to Consolidate

Typically, when someone seeks to consolidate debts or refinance student loan obligations, they want better and less expensive terms. There could be additional benefits to the process. For one, debt consolidation leaves someone with one consolidated bill instead of several bills. 

It can sometimes be challenging to stay on top of debts, especially when dealing with financial troubles. Paying four credit card bills while paying health insurance premiums and car and home loans could become less taxing if the credit card balances go into the new mortgage balance. Four credit card payments and a mortgage payment become one payment alone. Staying on top of a monthly budget may be easier this way.

Lowering Monthly Payments

Paying several credit cards and a mortgage payment each month adds up. Not everyone can meet all the minimum payment amounts when they have limited cash flow. A debt consolidation mortgage may deliver a monthly payment lower than the combined payments. That might provide more cash flow to handle other budget expenses. Make sure you choose a trusted financing platform like SoFi to lower your monthly payments on refinancing and save some cash.

Avoid Running Up More Debt

Debt consolidation could bring those credit card balances to zero. If the account holder starts using the cards irresponsibly, the result could be new mortgage debt and new credit card debts, which are potentially fiscally disastrous.

Refinancing a mortgage could help someone consolidate debts into a new, more manageable loan. The new obligations might be far less costly than the previous financial situation.


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