Knowing the details of this process is key to making the most of it, although it is not always the best option. What you have to know before requesting a refinance.
The excessive or incorrect use of credit cards or loans can generate important debts. Can’t you get the money to catch up? Did you delay with a payment and now you have an unpayable debt?
Quiet, there is a mechanism called debt refinancing that can get you out of trouble and help you sort out your financial situation. But beware! It is not always the best solution. Therefore, we tell you everything you have to consider to analyze this option and make the right decision.
What does it mean to refinance a debt?
You were late in paying one or more installments of a bank loan, have trouble paying your card or are using one card to pay another. These are indicators that your finances are in red.
For these cases, there is a tool called debt refinancing. Do not confuse it with the request for a loan. It is about renegotiating the conditions of your debts, grouping them into a new credit, which replaces and cancels the original with new terms and interests.
The objective is to improve the payment plan, extending debt terms and accessing installments that are easier to pay and cheaper than those initially agreed. That is, it seeks to settle the debt, reducing the interest that is currently charged for lower ones.
When should it be done?
In case you cannot fulfill your financial commitments with a financial entity, the first thing you should do is determine if the expenses you are having are necessary. If indispensable, debt refinancing is a way to consider.
For starters, it is important that you know that it only makes sense if you can really save money. Starting from this base, when considering this alternative, there are two factors that you have to pay attention to, which will help you make the best decision: the interest rate and the term.
To tempt their customers, banks often offer refinancing with a lower interest rate, but at a longer term. In this way, you will achieve cheaper fees and longer terms. But this may not be entirely convenient, since as the period of time increases, your debt may grow and eventually pay more money in the long run. Therefore, we recommend that you carefully review the total cost of the new credit to analyze if it really benefits you and allows you to save, or if, on the contrary, the increase in interest hurts you and generates additional expenses.
What to do when talking with financial institutions
You should not hide or try to go unnoticed by the banking system. Current technology makes it easy to find and quickly access your data.
To achieve a good refinancing, it is best to advise properly. Among the options available, secured loans such as those offered by Good Financial have optimal conditions for the user. By working with low interest rates and long terms, you can better face the monthly fees incurred.
As a debtor, we recommend that you be honest and reveal your situation so that the institution offers you the best alternative. She will want to make sure you intend to pay off your debt effectively.
Another point to consider is that, before granting a refinance, the banks analyze if you have previous debts, more seniority, with other financial entities, and if your payments were made in a timely manner.
What to do once a debt is refinanced?
Some tips not to fall into the same situation again:
- Plan your economy. Sometimes events occur that alter our financial and personal situation, and that are beyond our control, such as loss of work and appearance of unavoidable expenses due to illness, among others. Removing these specific facts, you must keep an adequate control of your income and payments daily.
- Do not take on new debts. Focus on canceling existing ones. Otherwise, you will enter a “deadly circle” of indebtedness.
- Check that you are not late with any payments (including loans). And if so, we suggest you update as quickly as possible. The higher the delay, the more your credit history is impaired. This could prevent you from accessing formal credit in the future.
- The value of your debt payments must not exceed 40% of your income. That is, if you receive monthly income of $ 100,000, your debt payments should not exceed $ 40,000.
- Avoid your credit card consumption reach the limit of purchase available. Your average monthly consumption should not exceed 50% of the maximum authorized limit.