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Time to refinance debts
By Nic Cicutti
January 18 2008
Few of us manage our finances perfectly. When we stop and think, there are
umpteen things that we could do better.
As money gets tighter in 2008, MSN Money offers five articles on the things you
really have to do to keep control of your finances. The first article (the
benefits of budgeting) can be viewed here, while the second article (get your
debts in order) can be viewed here.
And as the bills from Christmas and the new year start to roll in, refinancing
your debts to a cheaper deal is one of the most effective ways of freeing money
up and making loans more palatable.
The cheapest unsecured five-year loans
How to refinance debts
There can't be a single person reading this article who, at some stage, has not
wished there were a cheaper way to pay off their debts.
The simplest way to do that is to refinance - that is, to find a better deal
where interest rates are less than the ones you are currently paying.
Apply Now For Debt Consolidation
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The beauty of refinancing is that it can be applied in a wide variety of ways.
In other words, you are not necessarily exchanging one deal for another across
the range of debts that you have: it may also be possible to consolidate debts
into one single loan.
Indeed, that is how many people approach the issue. Research in 2006 by the
Office of Fair Trading (OFT), the consumer debt watchdog, found that more than
£40 billion of secured and unsecured lending was used for debt consolidation.
In addition, separate research by Mori Financial Services found that about 15%
of the £16 billion credit card balance transfers - where you get a 0% credit
card deal - involved consolidation of more than one credit card balance into a
single card.
Use our tool to find out if you can save money by consolidating debts
Financial products that can help
A variety of credit products can be used including:
* Unsecured loans, where you go to a bank or another lender and borrow a sum of
money to pay off all other loans. Because the loan is unsecured, you do not risk
losing your home in the event of a default.
* An advance from an existing mortgage provider secured against property, but
leaving the original mortgage intact. You are simply borrowing more money from
the same lender and your home is as much at risk as it was before.
* A “second charge” mortgage (a loan secured on property, from a lender other
than the existing mortgage provider, leaving the first charge mortgage in
place). Here, the second charge lender waits in the queue in the event of a
default and grabs its slice of debt after the “first charge” lender has been
paid back.
* Remortgaging a property and borrowing more in the process. You go to a new
lender and borrow more money, based on the rising equity in your house. Here,
there is the potential to get a better deal at the same time.
Compare rates for the cheapest remortgage deals
Apply Now For Debt Consolidation
The pros and cons
The benefits of consolidation are, as suggested: lower interest rates and
monthly payments and having to deal with just one creditor.
But there are also potential disadvantages that you should be aware of: for
example the cost of settling an existing loan, such as redemption penalties, and
arranging a new one possibly including broker commission.
Also, many consolidation loans often have lower monthly payments only because
the debt is spread over a longer period of time and because it may be secured on
property, so lowering interest rates. But your home is at risk in the event of
default - and you often pay more interest overall.
What to consider before you get a loan
One thing to watch out for is payment protection insurance (PPI). Such cover is
usually far more expensive than can be obtained by shopping around. Usually,
interest is added on the cost of the cover as well as the loan itself, making
the entire loan much more expensive.
Finally, many borrowers, particularly those in financial distress, are unaware
of other alternatives to refinancing open to them, such as negotiating with
creditors themselves or getting help from free debt counselling services.
It may be worth thinking about this before you go and refinance your debts.
Get free tailored help with your debts from the Consumer Credit Counselling
Service
This is the third article in the MSN Money series on the keys to financial
success in 2008 - the first article (the benefits of budgeting) can be viewed
here, while the second article (get your debts in order) can be viewed here
Related links
* Could you save cash consolidating debts?
* The cheapest unsecured five-year loans
* The cheapest secured loan deals
* Compare rates for the cheapest remortgage deals
* What to consider before you get a loan
Apply Now For Debt Consolidation
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