Financial insight: Tips to reduce or eliminate high-interest debt[dropcap]R[/dropcap]eality is eye opening: The total amount of consumer debt is more than $13 trillion in the United States. That means if you have revolving bills to pay off loans and other debt, you’re certainly not alone.
Having high-interest debt can feel like a big weight on your shoulders that stresses your financial wellness today and impacts your goals in the future. Fortunately there are ways to reduce or eliminate the debt that’s weighing you down.
Step 1: Focus on the highest-interest debt
The first step is to analyze all debt and figure out which items are costing you the most. Debts with the highest interest rates are often credit cards and student loans. This means you’re not only paying off the amount of money you borrowed, but also a high percentage in interest. This can cost a lot of money and in turn take you much longer to pay off the entire balance.
Therefore, when determining which debt to pay off first, high-interest debt should be the focus. You will still want to pay off other debt on time each month, but you should prioritize eliminating high-interest debt. When figuring out a budget, try to put extra funds toward these debts versus other debts because the high interest is ultimately costing you more.
Step 2: Explore debt payoff options
There are options to pay off high-interest debt with lower-interest alternatives that can help you save money. One way is to tap into the equity of your home. In many areas of the country home appreciation has increased in recent years. While home lines of credit can come with costly interest rates, a cash-out refinance may provide optimal rates while providing you a lump sum of money to pay off high-interest debt and other things like home improvements or medical expenses.
Carrington Mortgage Services, LLC, offers a variety of cash-out refinance options, including loans for homeowners with less-than-perfect credit. For example, the Carrington Flexible Advantage (Non-QM) Program provides loans for people with credit scores down to 500 and does not require mortgage insurance. This includes people who have recently had a credit event like a foreclosure or bankruptcy.
Carrington also offers conventional loan options that provide cash-out refinance on up to 80% of your home’s equity for people with credit scores as low as 620. Learn more about these and other loan options at carringtonhomeloans.com. If you decide to apply, you can typically learn about approval within 24 hours.
Step 3: Stick to a financial plan
Once you decide which debts to prioritize and explore options for paying them off and lowering your overall interest rates, make a financial plan. This includes a monthly budget that you can follow to live within your means while paying all your bills on time. If you need assistance, consider working with a certified financial planner who can help design a plan that works for you.
By sticking with your plan, you’ll be able to pay off debts efficiently while boosting your credit history. When you consolidate debt through options like a cash-out refinance, you’ll simplify your bill pay potentially from multiple high-interest loan payments to one loan payment at a more reasonable interest rate. Keep track of your spending and pay bills on time and you’ll supercharge your financial health and position yourself to reach goals.