High interest debt can be one of the most common reasons that people find themselves in a never ending cycle of loan payments. When you make a loan payment, you should be making progress on your principle balance, right?
With some high interest loans, the minimum payments simply cover the interest accrued without helping you move toward being debt free.
These loans often lead people to look for other solutions and one of the most common solutions to free you from high interest loans is refinancing. This is the act of acquiring a new interest rate, term, and payment schedule on a loan.
Here are some reasons why refinancing a high interest loan may be the right option for you.
1. Lock In an Affordable Rate
Loans either offer variable or fixed rates. Variable rate loans have interest rates that can change over time and fixed rate loans will remain the same over the term of the loan.
A variable rate loan might look attractive at first but soon turn into a loan that becomes unmanageable. Locking in a more affordable fixed rate and lowering your payments is a great reason to refinance.
Best of all, you can see variable and fixed rates from a number of different lenders all in one place, which allows you to comparison shop and find the best loan for you.
2. Get More Favorable Repayment Terms
Some high interest loans like payday loans have repayment plans designed to keep you in debt longer than you initially expected to be. In fact, a lot of people spend almost an entire year paying back payday loans that began as a single two-week loan.
Refinancing a loan can allow you to find a more manageable repayment schedule for your loan. You could amortize payments over a longer period to reduce the amounts of your payments and allow you to build a better budget while still managing debt.
3. Start Investing in Yourself
Once you have secured a lower interest rate and a more manageable repayment schedule then you can begin thinking about more than just your debt.
Investing in yourself is an important step to financial freedom. For most people, this means setting aside money for long term savings like retirement. As you save more, freedom will feel closer than ever before.
4. More Budget Flexibility
Once you have refinanced your high interest loans then you may find you have more flexibility when creating your monthly budget.
This newfound flexibility is not a license to go wild with your spending. Instead, you should look for ways to budget your money in ways that will help you reduce debt and increase savings. Dedicate extra funds to credit card payments or start setting aside more for special purchases and long term goals.
Embrace Your New Financial Freedom
Escaping high interest loans can feel like a weight has been lifted off your shoulders. It’s up to you to ensure you make the most of this opportunity and enjoy the financial freedom you have been given. Save money, invest in yourself, and avoid the types of loans that put you in this situation originally.