Tuesday, September 14, 2010
Greetings Thrifty Friends,
A popular method for dealing with debt is to consolidate
multiple loans into a single, lower-interest-rate loan,
such as a home equity or personal loan. Another option is
to refinance your existing mortgage to a lower rate and
to take out some additional cash based on the equity in
your home. You wind up with a larger mortgage balance than
you had before, but you can use the extra cash to pay off
other non-mortgage debts that carry higher interest rates.
But you have to be careful with this strategy or you can
end up in worse shape than you started! Scroll down for
more.
Keep pinchin' those pennies,
Penny
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TODAY'S THRIFTY TIP:
Be sure the loans that you combine don't have lower interest
rates than the rate for the consolidation loan. Student
loans, for example, usually carry some of the lowest rates
around. Or if you have a zero-interest-rate auto loan, don't
consolidate it; you can't beat that interest rate.
Avoid consolidating if it will result in a longer-term loan.
People sometimes make the mistake of rolling several short-
term loans, such as a four-year car loan or a two year
appliance loan, into a 10- or 15-year consolidation loan
or the 30-year refinancing of a home mortgage. Stretching
out payments will result in an overall lower monthly payment
but you'll end up paying much more in interest in the long
run than if you'd stuck with the original loans. If anything,
you want to shorten your debt repayment period whenever
possible.
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