June 11, 2019
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,
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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.
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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.
The only exception to this might be if you were going to funnel all of the payments you were making on your smaller loans into additional mortgage principle payments.