Debt Refinance

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If you are unable to manage the monthly payments on your debt you may want to consider debt refinance. Debt refinance offers the benefit of eliminating your debt while having a lower interest rate. However, debt refinance may only be available to you if you own your own home. In addition, debt refinance is not always the best option for every individual. Therefore, before you decide that debt refinance is the right decision for your financial situation, contact a non-profit credit counseling organization to help you develop a debt refinance plan. 


A non-profit credit counseling organization will review your financial situation and help you decide whether debt refinance is the right decision for you. Most non-profits provide initial consultations in person without charging a fee. If the non-profit refuses to meet with you in person or will not give you a clear answer regarding any fees involved, consider going elsewhere for assistance. In addition, do your research on the organization you are working with. For example, check your local Better Business Bureau, or BBB, to determine if any complaints have been lodged against the non-profit. 


A debt refinance loan is available through most major banks and lending institutions. First, the bank will send an appraiser to your home to determine the home’s value. In addition, the bank will consider how much equity you have in the home to determine the amount of the loan. A loan based upon the collateral of your home’s equity is also referred to as a home equity loan. 


If you are approved for a debt refinance loan, the bank will provide you with a loan based upon your equity in your home and you can use the loan to repay your other debts, like credit card debt or medical bills. Usually, you can obtain a much lower rate of interest on your home equity loan than the interest rates of your credit card or other debts. After repaying your debts with the loan, you will make one monthly payment to the bank for your home equity loan. 


However, there are risks associated with a debt refinance loan based upon your equity in your home and your home’s current value.  For example, as we have seen lately, the housing market can change dramatically in a short amount of time.  Therefore, you may end up owing more on your house than your house is worth. In addition, the lending institution will likely charge you a fee to refinance your debt, making this option more costly than other options including negotiating with the creditors to lower your monthly payment or creating a debt management plan. Also, if you are late on a payment toward your debt refinance loan, it can reflect negatively on your credit score, just like any other delinquent payment. 


Debt refinance can be a complicated process, with many decisions to make.  Therefore, to learn more about dealing with debt, visit www.ftc.gov/MoneyMatters. In addition, if you have questions regarding your rights in terms of debt collection, visit http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre18.shtm.