Dec 20, 2016 By Drew Cloud, The Student Loan Report 6 min read

If you’re looking to set some New Year’s resolutions and get your finances fit in the coming year, take a look at four debts you should consider refinancing.

Refinancing debts can be a good option in many situations, particularly if you are just starting out, have a smaller salary than counterparts who are more established, and have a lower credit score. When you find yourself in this type of situation, you are often subjected to higher interest rates on all kinds of debts. This can make it more challenging to pay down your debts, which can quickly result in a heavy debt burden. Refinancing your debts can provide an effective solution for taking advantage of lower interest rates and better terms.

Auto Loans

Many consumers fail to realize they are able to refinance their auto loans and instead think they are locked into the initial interest rate for the entire time they have their car loan. In fact, it’s quite possible to refinance your auto loan to lower your interest rate. In order to do so, you will typically need to have a solid credit history and excellent credit. Not only can refinancing help you to save money on interest, you could also pay off your loan faster. Remember that in addition to banks, you may also be able to refinance your auto loan through a credit union.

Student Loans

For many young professionals, student loans are a massive burden. It’s not uncommon for students graduating from college today to have a debt bill amounting to tens of thousands of dollars. With such a large balance, interest rates can be a real issue. The interest rate on a Direct PLUS loan, for instance, can be nearly 8 percent. Over a period of several years, that means you would be subjected to paying thousands of dollars in interest. This can result in high monthly payments that can quickly consume a large portion of your budget and make it difficult for you to move ahead with your life. Refinancing student loans can help reduce your interest rate and your monthly payments.

If you are considering refinancing your student loans, make a point of comparing multiple private lenders to be sure you receive the best interest rates and most competitive terms. Keep in mind that the better credit you have, the better your offers will likely be. You could choose a variable interest rate, which will usually result in lower payments, but if you prefer more security, a fixed-rate refinanced loan could still help you save thousands of dollars over the term of your loan.

Credit Cards

It’s common today for consumers to have thousands of dollars in debt spread out over multiple credit cards. High interest rates can make it challenging to pay down your balance and get rid of the debt once and for all, as the interest continues to grow with the balance. If you are interested in refinancing your credit card debt, one of the easiest ways to do so is by transferring the debt using a 0 percent interest rate offer. You will usually need to have good to excellent credit in order to qualify for this type of offer, which means having a minimum credit score of 680.

Keep in mind that this is only a good option is you believe you will be able to realistically pay off the debt quickly. In most cases, a 0 percent interest rate offer on a credit card will increase after a specified period, such as 6 months to 12 months. If you fail to pay off the balance by the time the interest rate increases, you will find yourself in the same situation. Furthermore, you may have paid a fee to transfer the balance. Therefore, you should only take advantage of a promotional offer to transfer your balance if you believe you can pay it off quickly.

Mortgage

Many consumers were able to benefit from historically low mortgage interest rates in the last few years. If your home loan is at a higher rate, however, you could reduce your interest and lower your monthly payment by refinancing your mortgage.

Prior to refinancing your mortgage, take the time to think about available terms and the state of your credit, as this will impact your prospective offers. Be aware that the closing costs for a mortgage refinance can be costly. For this reason, it’s important to determine the amount you will save over time if you refinance to determine whether doing so will offset the upfront costs.

The process to refinance a mortgage can be expensive and time-consuming, but it could make sense in a number of situations. If you have a standard 30-year mortgage, refinancing for a lower interest rate could help you save tens of thousands of dollars over the term of your loan. To make this work for you, however, you should take care not to extend the repayment term for your loan. The only time you should think about extending the term of your loan is if you are experiencing financial difficulties and are no longer able to afford your current mortgage payment.

You should also take into consideration the length of time you plan to remain in your current home. For instance, if you plan to remain in your home for several more years, you would have enough time to recoup the cost of the refinance through the savings you garner by refinancing. On the other hand, if you plan to move and sell your home within the next five years or less, you might find that you would not have a sufficient amount of time to recoup the cost of refinancing through the money you save.

Choosing to refinance your debt can present the opportunity to take advantage of lower interest rates and save thousands of dollars in interest payments.