“Debt” might be a dirty word for some people, but the truth is that it’s nothing to be ashamed of—especially because the vast majority of us are living with it. Research shows that the average American has a whopping $90,460 in debt.
Of course, just because most of us have debt doesn’t mean it’s comfortable to live with it. What do you do when you feel like you’re drowning under unmanageable terms, costs, and conditions?
That’s where debt refinancing comes in. While it won’t erase your debts, this helpful financial tool allows you to change the amount you’re paying each month, which can be a major boon for most.
If you’re ready for more financial freedom, here’s what you should know.
How Does Refinancing Work?
As the term suggests, debt refinancing happens when you replace older, existing debts with a new debt that has better rates and conditions. Essentially, you’re taking advantage of a deal that allows you to pay off your debts with terms that you prefer. You can refinance personal as well as business debts.
What Are the Pros and Cons of Debt Refinancing?
Now that you have a better understanding of what refinancing debt actually means, you may be wondering, “Is refinancing worth it?” The answer to this question will depend on your current financial situation and the types of debt you need to pay down, but you might want to weigh the pros and cons as you decide.
Pros of Refinancing
Right off the bat, it should be clear that there are a few key benefits of refinancing.
Refinancing old debts can give you access to better terms and conditions, which often means lower interest rates or a different repayment term length. This can help you save money in the long run, and it can also give you more flexible cash flow in the short term by freeing up some of the money you’d be putting into upcoming payments.
Cons of Refinancing
It’s worth noting that there are a few risks and disadvantages when it comes to debt refinancing as well.
Because your lender will do a hard inquiry on your credit, you’ll have a short-term impact on your credit score. You’ll also be replacing an older debt with a new one, which can affect your credit score as well. In addition, you may not be able to get a significantly lower interest rate in some cases, and you may have to contend with prepayment fees.
How Do You Get Started With Debt Refinancing?
If you’re ready to get started with debt refinancing, you’ll want to consider what type of loan to take out. This will depend on whether you’re looking for a personal or business loan, or whether you’re hoping to refinance your home mortgage.
For many business owners, getting a federally backed loan through the SBA 504 program is your best option. For individuals, you’ll have to do more homework: shop around for a loan with a fixed-rate APR, and don’t hesitate to check with multiple lenders until you find an option with terms that work for you.
Find a Better Way to Manage Your Debt
If you feel like your current debts are unmanageable, debt refinancing may be right for you. While this financial tool may not be helpful in all cases, weighing the pros and cons can help you decide whether the advantages are worth the potential risks. Work with a lender today to see whether this option will work for your needs!
Want more of the business and finance guidance you need? Be sure to check out our other posts for more tips and tricks.
