Advice From Suze Orman On Refinancing
Getting out of debt is a major motivation for people to use refinancing to consolidate all of their debts. As the nine steps to financial freedom say, getting rid of debts that are at high rates of interest is essential to gain financial freedom!
As Suze says in Suze Orman’s 9 Steps To Financial Freedom “If you’re respectful of your money, and do what needs to be done with it, you will become like a magnet, attracting more and more money to yourself.” Paying more interest than you need to is certainly not respectful!
All the debts that a person has can be moved into one lower interest loan secured by property. Debt consolidation can be very helpful in getting out of debt, but refinancing for debt consolidation can cost people more money in the long term in certain cases, so exercise caution when using refinancing for this purpose.
Debt consolidation is where all of the debts that a person already has are moved into one debt consolidation loan, secured by real estate. The debts don’t vanish - the person will still have to pay off the previous loans. However, the interest rate for the single loan will usually be much lower than the rates from the other loans in the past, because the loan is now secured.
While refinancing for debt consolidation can help to simplify one’s life it can cost more money over time in some cases and that is not respectful either. You really need to think this through carefully. You don’t want to do something for the purpose of getting out of debt, only to find yourself stuck with higher costs in the long run.
While there many be lower monthly payments in some cases that may result in more money to pay in the long term, because the term of the load may be much longer. You may have had a personal loan over five years, with three years remaining, and after refinancing for debt consolidation, you are now paying that loan off over thirty years. Of course, over all those years, even at a lower rate, you will end up paying more interest in total than if you kept up the higher payments for three years.
Another concern about refinancing for debt consolidation is that even though it can help to increase one’s cash flow that may not be the case in all instances. It will depend on the types of debt you have currently. Online consolidation calculators can be used to help determine how much the refinancing will cost in the long term and how much of an increase in cash flow could be possible.
Of course, when you accomplish an increase in cash flow through refinancing for debt consolidation, you can’t just go and spend it on living expenses. This will not help you with getting out of debt! You need to divert that extra cash flow straight back into paying off your debts faster. This will enable you to avoid some of that extra interest from making short-term debt into long term debt.
Ultimately, of course, getting out of debt will involve paying off the debt consolidation refinance mortgage as well.
Read a summary of Suze Orman’s 9 Steps To Financial Freedom.
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