Woah, that’s a loaded question! We could be here for hours discussing it, but let’s be real, you probably don’t have the time for that right now. So, let’s just take a big-picture look at it.
Debt financing is a strategy some people use as a sort of “Hail Mary” play before they file for bankruptcy. For example, a lot of people use the equity in their homes to pay off their other debts to get better interest rates.
This seems like it could be a simple, helpful tactic initially, but unfortunately, the terms can be nearly predatory. As a result, this is a highly regulated option now and not very accessible.
Is it Worth Refinancing Your Existing Debt Into One Loan?
As with most things in life, the answer is, “Maybe.” It depends on a number of factors, including:
Closing costs and fees (for example, origination fees)
New vs old interest rates
Pre-payment penalties on existing loans
Interest rates will vary based on your income, the market, collateral, and term, but a lender should be able to give an estimate before incurring these charges.
The pre-payment penalty (if applicable) and interest rate will be outlined in the Promissory Note of the existing loan, which can be confirmed by the lender as well.
If the interest rate is lower on the new loan, it still might cost you more than you’re saving, especially with the closing costs or if the term of the loan gets extended to create more payments.
Confusing, right? It’s definitely a muddy area to dive into, which is why you should get support from an accountant. We’d love to answer any questions, so please contact us if you need help!
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