Managing your finances to make payments more affordable is one of the better ways to improve your odds of paying off debts. Some people choose to focus on a credit card or loan at a time to free up funds, but when you have several accounts with high balances, that isn’t always an option. Thankfully, there are much better options available to pay off debt faster.
Through debt consolidation and refinancing, you can improve your financial situation. You can have the opportunity to gain better interest rates, better overall terms, and lower payments.
Seems ideal! They both have the same outcome, right?
On the surface, they seem the same, but when you dig into the definition, they have very different goals that are important to consider if you are attempting to improve your buying opportunities.
Why!?
If you don’t understand the difference between the two, how will you choose the best option for you?
In this article, we are going to help you gain insight as to the difference between the two and give helpful tips to help you make the right choice.
Debt Consolidation
Debt Consolidation narrows down to one source to eliminate debt. It makes it easier for you to consolidate different forms of debt into one payment that should be more manageable for you.
The benefit?
Debt consolidation can help you lower interest rates and monthly payments to pay off your loan(s) quicker. It also makes it easier to keep a record of your payments to meet your financial goals.
There are several options to consolidate debt. Many people opt for a personal loan because it allows them to keep their credit cards, pay off those debts to creditors, and help improve their credit. However, for those who are not able to get a personal loan, there are other options available but they are not always the easiest options.
Debt Refinancing
Debt refinancing is more defined than debt consolidation. Where debt consolidation focuses on using new debt to pay off the old, debt refinancing replaces one debt with another.
How is that different?
Debt refinancing is very specific to how you use it. The focus is to replace your current debt with the same debt but with more favorable terms. You usually see this with mortgages to gain a better interest rate with the goal to change the loan type or secure a better payment plan.
A unique benefit of debt refinancing is that you can use debt refinancing to consolidate debt. For example, if you have an auto loan and mortgage with the same bank, some banks offer options to combine payments.
Refinance or Consolidation?
When deciding whether or not you want to consolidate or refinance your debt, you should review your overall goal.
- Do you have multiple debt payments and want to manage them easier?
- Are you seeking better payment terms?
- Are your interest rates higher than the average?
- Do you have multiple credit cards payments that you want to consolidate together?
- Do you have multiple loans with the same bank that you want to place in one easy payment?
Answering these types of questions will help you decide which option is best for you.
Of course, whatever you decide depends on your individual circumstances, but the bottom line comes down to the following:
- Are you seeking to make your debt more manageable? (such as a home or car loan) Maybe refinancing is best for you
- Do you have multiple debts from various lenders (such as credit credits) Maybe Consolidation is best for you
What do we recommend?
Do your research and speak with a consultant that will help you make the right choice.
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