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When To Refinance: 3 Steps to Deciding Whether to Refinance or Not
How long you keep your home
Generally, it makes sense to refinance if you plan on staying in your home for many years.
If you plan to sell the property soon, don't refinance. Refinancing could take years to break even and begin saving you money.
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Refinancing your home
When mortgage interest rates get low, refinancing isn't always the best choice.
Deciding when to refinance your home loan depends on several factors besides whether you can get a better mortgage rate.
Reasons to refinance your mortgage
The two big reasons to refinance are:
- To reduce your monthly mortgage payment
- To save on the overall interest you will pay on your house in the long run.
Refinancing does not always reduce the monthly payment or save on the overall interest.. A loan officer or mortgage broker can help you run scenarios that show you the cost and potential savings of refinancing.
How long you keep your home
Generally, it makes sense to refinance if you plan on staying in your home for many years.
If you plan to sell the property soon, don't refinance. Refinancing could take years to break even and begin saving you money.
Qualifying for refinancing
Even if refinancing makes sense in your situation, you'll still need to qualify. Your ability to refinance depends on factors such as the amount of equity you have in your house, your income, and your credit.
If you qualify, it's important to get quotes from multiple lenders before you make a decision. Even small savings will add up over the years.
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Regular monthly bills
The bulk of your budget is made up of necessities like rent, phone and internet bills, insurance, etc. If you can lower your monthly expenses, you can save a lot for unplanned events.
Debt when you're on a tight budget
There are a couple of paths you can take to pay off your high-interest debt when you're on a tight budget.
- The snowball method. For those who need to see progress, pay off the lowest balance first. You'll feel inspired to keep going.
- The avalanche method. Choose the debt with the highest interest rate to pay off first. This may require larger monthly payments and will take longer to see progress, but you will save the most money in the long run.
- If you need to prioritize your credit score, focus on paying down your credit cards first. Paying the ones you are near to maxing out will improve your score quickly by a few points.
- Set up payment plans, even if you can only afford a few dollars at a time. That way, your lenders can see you're paying something.
Incorporate unplanned entertainment in your budget
Financial professionals will advise you to cut out expensive nights out. In truth, you will have night's out, even when you're dirt poor.
To incorporate unplanned entertainment, set aside an amount each month. Be realistic. You can open another savings account for fun spending or you can use cash only.
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The snowball debt method
With this method, you pay off your debts from the smallest balance to the largest balance, regardless of interest rates.
When you pay the smallest debts first, you start to...
The avalanche debt method
In the debt avalanche method, you pay your debts from the highest interest rate to the lowest interest rate, regardless of balance.
You will pay less in interest if you pay off your debts in this order. You will also pay it off faster.
Deciding between the Snowball and Avalanche debt methods
The supporters of the two methods are both enthusiastic about which one to use. However, it barely matters which system you use. The best approach is the one that keeps you motivated.
Make the minimum payments on all of your debt. Then, focus on one debt that bothers you the most and put every dollar you can towards it until it is gone. Then move on to the next debt.
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Key Ideas
Save On Transport Without a Car
You’ll save far more if you don’t buy a car or sell it if you already own one but can go without it.
If you can use public transportation, you can save quite a bit of money on ...
Save On Transport While Keeping a Car
Carpool to work if you can to significantly reduce wear and tear on your car, save on gas, and take advantage of carpool lanes that might make it easier to get to work.
Check at least once a month to keep the tires on your vehicle properly inflated. Doing so can improve your gas mileage.
Save On Debts
Refinance your home or automobile at a lower rate to save money over the life of the loan and lower your monthly payment.
If your student loans are locked in at a high-interest rate, figure out whether it makes sense to consolidate all or some of them.
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