Should you refinance or consolidate debt?

If you are currently making payments on a high-interest mortgage, auto loan, or other consumer loan, it may be a good idea to refinance the loan or consider debt consolidation. Interest rates may have come down since you originally borrowed the money, and lower interest rates can save you a significant amount of money. Be sure to weigh the pros and cons of all of your options to determine if refinancing will work for you

One of the biggest pros about refinancing is that a lower interest rate usually means a lower payment. You might choose to extend the loan term as well, which will lower your payment even more. If you are refinancing a mortgage, you may be able to quality for a cash-out refinance, which allows you to borrow more than you currently owe on your home. You can use additional cash to pay off other high-interest bills. One of the biggest incentives is that refinancing a mortgage with a cash-out means that the loan will be tax deductible.

If you extend the length of your loan, you’ll be paying more interest. You may have to pay closing costs or points to refinance your mortgage, or at least add those costs to the amount of your loan. You need to compare these costs against the savings you would receive from the lower interest rate.

Increasing your mortgage amount with a cash-out refinance can be risky because your home is the collateral for this loan. If something happens and you can’t repay the debt, the lender can foreclose on your home.

Debt consolidation means you roll all of your individual loans into one note.
One benefit is that you make only one payment. There are many methods to consolidate debt, including paying them off with one low-interest credit card, taking out a personal loan to pay off small debts or using a home equity loan.

The monthly payment on your consolidation loan is less than the sum of the monthly payments on your individual loans. The interest rate on your consolidation loan is lower, which means you’ll save money.