Debt is scary for anyone. You’d be hard-pressed to find a person who wants to be in debt, but the truth of the matter is that most of us are. It’s a part of life these days, and while that’s not a bad thing, it doesn’t make it any easier to cope with or talk about. There’s a pretty big stigma surrounding being in debt, as unfortunate as that is.
Because of this, it appears as though a lot of the “solutions” that are out there for debt just don’t get talked about very often. Seems a little strange, considering that most adults these days have some form of debt or another, but given that stigma that was mentioned above, there does appear to be some logic to it. Still, though, it’s hard to argue that discussing it more would be a bad thing.
Today, we’ll be examining some of the methods that can be used to help mitigate the impacts that debt can have on us. Obviously, there is no magic wand that we can wave to make it all go away. However, there are certainly some strategies that we can make use of to at least make our lives a bit easier when it comes to the bills we pay thanks to our loans, which you can read about a little more on this page.
For the most part, our focus will be on refinancing. However, before we can get there, we should cover some of the basics when it comes to debts. So, if you’re keen to learn more about what it means to have a credit agreement and how repayment works, make sure to keep reading.
Credit Agreements: What You Need to Know
For anyone who wasn’t aware, “credit agreements” are really just a fancy way of saying “loan.” You see, credit agreements are any financial contracts that a borrower makes with a lender, with the funds that are borrowed will be paid back in full over the timeframe that is allotted in the documents. So, when you hear people say, “read the contract carefully before you sign,” that’s usually why.
There are a ton of important details held within the paperwork, as annoying as it can be to read it all. It’s worth the time it takes to do so. However, if you do end up struggling to make sense of it all, there are certain strategies available in terms of understanding it without stressing yourself out too much. In those circumstances, you might benefit from a financial advisor, or at least consulting with one in some manner.
Beyond that, though, what is there to know? Well, for one thing, it is possible to go through refinansiering for pretty much any debt in the “credit agreement” umbrella. Sure, it’s more common for some over others, but that doesn’t mean it’s impossible. The most common type of loan to refinance is a mortgage.
Mortgages are a prime candidate largely because of their size and scale. Thinking about it, they’re loans that last a very long time, right? Typically, it ends up being for decades, since it’s not likely that a borrower will be able to pay back the cost of an entire house in just a few years. Of course, it’s technically the cost of the property minus that initial downpayment, but the point remains the same.
What is Refinancing, though?
This term has been thrown around a lot in this article so far, so it only seems fair to finally define it. You’ve probably heard about it before, though, in the context of mortgages – as was mentioned above. Realistically, they’re not all that complicated to understand. What you see is pretty much what you get.
That being said, it never hurts to delve a little deeper. So, when you first hear “refinancing,” what comes to mind? There are a myriad of things that you might imagine, but one of them is probably going to involve some sort of altering the original terms of a financial agreement. That’s pretty much the definition of refinancing.
Most of the time, as you can see here, https://moneytips.com/refinancing-a-car-loan/, it’s something that’s done for the larger scale loans. There are a few reasons for that, and most of them have to do with how interest rates and the passage of time connect.
Anyone that isn’t already aware, interest rates change over time. Tons of factors are involved, of course, but the state of the economy both nationally and internationally plays a big role in that. Here’s the thing, though – depending on the original contract that’s been signed, the interest rate on a credit agreement may not end up changing. For many borrowers, this isn’t ideal.
While it can be “beneficial” in the case of interest rates getting a lot higher in the years since a loan was taken out, often, that’s just not going to be what happens. Think about it this way: many of us end up borrowing money when our own finances aren’t going great, which implies that the economy in general is in a similar state. So, as both our own financial situation and that of our government improves, interest rates will go down.
How it Works
You might be wondering what any of that really has to do with refinancing, though, and that’s understandable. As you may have guessed, though, much of refinancing involves aiming to lower the interest rates on your current loans. After all, that’s part of how it can become really hard for borrowers to make their repayments on time and in full.
When more is being added to your balance all the time, you may end up saddled with larger monthly payments, too – particularly if yours are a percentage-based calculation. Even something like 0.5% of the total loan becomes a problem if it’s constantly growing. That’s the other part of the refinancing, really – to reduce the size of repayments.
Blogs like this one can offer some further perspectives on how that works, for anyone who’s interested. However, there is another important thing to keep in mind: as you go through this process, there will likely be some caveats to be aware of. It’ll depend on your lender and what sort of debt you’re refinancing, of course.
Most commonly, it’s that the overall length of your repayment period will be adjusted somehow in the new contract. Since you’re essentially taking out a new loan to pay off the old one, with different terms, it’s a good idea to get familiar with what you’ve agreed to this time around. That’s true whether you’re working with a new lender or with the one you already have.
Something else you may want to be aware of is how the application process works in the first place. While it’s pretty simple, there are still things to bear in mind. Most notably, you’ll want to have some paperwork ready for yourself on hand. This could be identifying documents, but also things that prove your current income as well as tax forms to demonstrate your ability to make the repayments properly.
Before you even start, make sure to get familiar with your credit score. Depending on what yours is, you’ll have a lower or higher chance of getting approved for the refinancing application. Knowing what to expect beforehand is half the battle, really, so you might want to use some of the free programs that are out there to check in on your financial health.
Beyond that, though, going through refinancing is something that helps a lot of people each and every year. When the monthly bills are stacking up and you’re not sure where to turn or how to handle it, adjusting some of them to make them smaller can be a lifesaver.
