I’ve got a funny meme for you:
Hehe, this honestly gave me a laugh when I saw it…
Because IT’S TRUE >:(
I haven’t talked about debt too much on here (mainly because I always talk about DEEAATTHH during Financial Audits)…
But someone reached out to us recently and asked about refinancing their debt and if it’s worth it.
They didn’t go into detail about their situation, but I figured I might as well address it here so you guys are up to date (and I don’t have to repeat myself).
First off, there are 2 debt principles:
- Not all debt is created equal.
That means you don’t treat your credit card debt the same as a mortgage or car loan.
However, all debt follows the same model:
When you borrow monies, you have to pay it back 1) over time and 2) with interest. Now, keep in mind…
- The longer it takes for you to pay back, the more total interest you pay for borrowing the money.
Notice how I said total interest.
This means the total amount of interest you give the bank after your loan is paid off.
And the more you’re paying towards interest, the less you’re putting towards paying off the debt (and the closer you are to dying on the Walmart floor).
This is bad. Big no no. DEATTTHHHH.
Since we got that out of the way, what’s debt refinancing?
Debt refinancing is when you initiate a new contract on your currently existing loan by:
- Changing the loan term (length of time)
- Changing the interest rate
It only makes sense to refinance your debt when:
- You can get better interest rate terms.
This only happens when interest rates are down and/or your credit score is better.
Lowering your interest rate will reduce the total amount of interest owed at the end of the loan (which can be tens of thousands depending on the loan)…
And everything else in your monthly payments will go towards paying off the money you borrowed.
BIG WIN.
You: 1
Grim Reaper: 0
By the way… A little Birdie told me that the Federal Reserve might turn on the money printer to lower what they call the “Federal Funds Rate”.
I’ll spare you the details, but this means you might be able to get a lower interest rate by refinancing if you recently took on some debt.
- You want to reduce your monthly payments by entering into a longer term.
Now, I’m not a fan of this because it breaks debt principle #2… but things happen.
Maybe you can’t afford the repayments anymore because you got laid off or another massive expense came up.
And by all means, YOU SHOULD NOT MISS THOSE REPAYMENTS.
If you’re cutting it close (and you cut out the taquitos and starbies!)…
You can refinance and extend the loan term so your repayments are easier to make.
Now, this might come with a higher interest rate so you have to pick your battles wisely.
- You’re switching from a variable-rate debt to a fixed-rate debt
I won’t get into variable-rate debts vs. fixed-rate debts in this email (because that deals mainly with mortgages)…
But if you can refinance from variable-rate debt to fixed-rate debt, I’d highly recommend it.
And that’s all you really need to know about refinancing your debt.
If you think refinancing is right for you, then call your loan provider, bank, Mom… whoever originated the loan to see if you can get a sweet deal.
I tried to make it as simple as possible for some of you dum-dums to understand since refinancing can be pretty complicated…
Even for someone as brilliant, sexy, and beautiful as me.
(And I’m single too… it’s a crazy world we live in.)
Well, as always…
Taquitos,
Caleb Hammer
P.S.
My debt class will tell you everything you need to know about refinancing and how to do it. Plus, you’ll get a whole bunch of tools to help you.
As a reminder, here’s what you get when you join the program:
- 25 Lessons on Debt
- 9 Comprehensive Guides
- Debt Payoff Tracker
- Chapter Quizzes
- Full Access to Updates of Class Material
- Email access to our team for budgeting questions
- 30-Day Money Back Guarantee
