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Two Ways to Reduce the Cost of Your Debt

A couple looking over bills in their living room.
Published 12/13/2023

Debt consolidation and refinancing can potentially reduce the cost of your debt by lowering interest rates or monthly payments. Then, the "extra" money can be applied to reducing your debt or your other financial goals.

Loan consolidation is the practice of combining various smaller debts into one large debt. Loans that are typically consolidated are unsecured personal loans, like student loans or credit card debt. Consolidation can help you lower interest rates or monthly payments and simplify the repayment process since you'll have just one loan to manage.

Refinancing is the replacement of a single loan with another. Just about any debt can be refinanced, including home mortgages, vehicle loans and even credit card debt. Refinancing can help you lower interest rates or monthly payments or reduce the length of time you’ll have to repay.

What to Consider

Loan consolidation or refinancing can be a good option for many, but you should review your options carefully before deciding. Here are some factors to consider:
  • Is the interest rate significantly lower? Is any reduction permanent, or is it a temporary rate?
  • Is the loan term longer? Lower monthly payments can be attractive, but the total interest cost of the loan should also be considered.
  • Are there fees that could reduce the potential savings? Paying $3,000 in home mortgage closing costs to save $100 per month, for example, may not make sense if you plan to move in the next couple of years.

Ways to Consolidate or Refinance

There are many ways to consolidate or refinance your debt, depending on your financial situation. Here are some examples:
  • Personal Loans: Use a personal loan to pay off high-interest credit cards or other debts. Personal loans often come with fixed interest rates and set repayment terms for stability.
  • Balance Transfer Credit Cards: Transfer high-interest credit card balances to credit cards with low or zero introductory rates, saving money on interest.
  • Home Equity Loans or Lines of Credit: Utilize your home equity to secure a loan or line of credit with lower interest rates compared to unsecured loans.

Loan consolidation and refinancing may be part of a larger financial plan that works towards your personal financial goals. Working closely with a financial partner you can trust, like your credit union, is key.

Stop by a branch or book a virtual appointment with Kinecta to discuss your needs. We’re here to help.