Have Any Outstanding Debts? Right Now May Be the Best Time to Refinance!

• Author: Jeffrey Simmons
• Posted: 2024-07-18

If you have outstanding debts, you know the extreme stress burden it puts you under. You can almost feel like a different person with such heavy obligations weighing you down. After all, while many don't like to discuss it, finances are our literal lifelines. If you have a lien or other judgments assessed against you, it can be demoralizing to not even receive your entire paycheck!

Thankfully, this is why refinance companies exist. Historically, these companies have been able to earn a killing due to a bustling economy and the ability to turn away whomever they liked. However, now that the Federal Reserve has set the interest rate for lending to primary banks at 0%, many refinancing companies have responded. In short, this means that there are historic lows for which you may qualify. Let's take a look and see if we can't knock off some of that debt!

What Debts Aren't Eligible?

Though refinancing covers many domains, there are a couple key types of debts that cannot legally be covered. The first and most problematic one for most people is credit card debt.

Unfortunately, this is not a "protected" category of financing. Credit card debt is legally seen as an agreement for you to work out with a money lending company. The best you can do with credit card debt at this time is have a company "buy out" your debt. In other words, the company will pay off your credit cards. This is also known as "card consolidation".

Such companies always have an interest rate, but it could be far lower than you currently pay. One huge benefit for those whose income is currently suffering due to the COVID-19 pandemic is that these consolidations make it so you don't have multiple minimum monthly payments anymore.

Consolidation companies have lowered their interest rates in general, but they aren't regulated by most states' laws and aren't regulated by federal law, so there is no requirement for them to do so.

A Consolidation Hypothetical

Let's say you have five credit cards with balances ranging from $500 to $5,000, and the minimum monthly payment on each card is $60. Let's also say that your total balance is $22,000. Currently, you would need to pay $300 a month to literally just not default; in most cases, this doesn't even touch the actual principle, just the interest.

Say you get it consolidated at a fixed 5% loan, which is quite possible for most people. In this event, you would still have $22,000 to pay off. However, the interest would be far lower, and your monthly payment may be something like $100. You would then only deal with a single company with more forgiving rates, enabling you to get out of that cycle of debt.

The Covered Types of Loans

The first and foremost type of debt that can be refinanced with any banker is a home mortgage. Mortgage rates have hit further record lows due to speculation for far more homebuyers than there actually are at the moment. If you're currently paying off your home, and you have a reasonable credit score (above around 650), you should definitely look into refinancing your mortgage.

You won't be able to lock in the same rate as someone signing their first mortgage agreement today, but you should be able to pay thousands less over the years regardless!

Other types of debts that you can refinance with reasonable credit scores are car loans, student loans, and medical debt. Keep in mind that, as home mortgage interest is tax-deductible, so is medical debt interest and student loan debt interest. However, car loan interest is not tax-deductible. Therefore, if you can only refinance one of these types of loans, you should absolutely go for your car loans first. This is because you are receiving no tax benefits for paying interest; it's post-tax income that just adds to the purchase price of the vehicle that you're paying.

Student loans are tricky in this regard, because only certain types are regulated. Many private student loans are not. If you have a public student loan, you're far more likely to be able to easily refinance it. Some private loans are "locked", making it far more difficult to do so.

Medical debt portfolios are often bought and sold by investors who send intimidating letters demanding you pay them or agree to an insane payment plan. You should first see just how much interest you can save on that debt by looking at your rates today!