Your household budget is likely under more pressure than in years. Employment insecurity, higher rent payments and higher prices for everything from groceries to vehicles have many of us scrambling to stay on top of our monthly bills. A refinance, adequately orchestrated, could benefit your family.
Lower Your Payments
If you took out a five year car loan and are struggling to make your money stretch to the end of the month, consider refinancing the vehicle loan to the full five year term to lower your car payment. Your new score could also lower your interest rate for those working to improve their credit rating.
Check your vehicle’s blue book value before you attempt a refinance; if your vehicle is no longer worth what you owe, keep plugging along on that payment and look for another way to free up more money.
Set up a spreadsheet that helps you track your:
- Monthly payment
- Total balance due
- Interest rate
Sort this spreadsheet by payment from highest to lowest and see what you can do to drop those biggest expenses. Consider finding a second job for 6 months to a year to wipe out the car payment if that makes more sense with your schedule.
Change the Terms
Some citizens have found that they could pay down some debts by sheltering in place and now have more income. If this is you, consider a refinance to shorten the term of your mortgage. For example, if you had a 30, run the numbers to cut back to a 20 or a 15.
You may also be able to keep the 30 year mortgage but refinance to wipe out other debts and free up more cash for:
- College tuition
- Starting a business
- Cutting back your hours
If you have credit card debt that you need to get rid of, consider first taking a money management course through a credit union. The problem with rolling credit card debt into your mortgage is that you put your home’s vital secured purchase at risk for unsecured debit or credit cards. Don’t risk your home until you are sure you can be a wise credit card user.
Remove a Cosigner
You may have had to ask someone to cosign for your last car. This is excellent help and benefit, but it lowers the borrowing power of your cosigner and may be pinching their home budget. According to Lantern Credit by SoFi, “If your score has come up, now is the time to check our refinance auto loan calculator to possibly lower your payment and give your cosigner back some borrowing breathing room.”
Make sure you have savings to cover an extra payment at the old rate before starting an auto refinance. Refinancing to take a cosigner off the loan may not go through and you want to be covered if you need to keep looking for another option. Don’t risk your credit and your cosigner’s credit to get this refinance done.
