Should I Refinance My Debt?

refinance debt

Should I Refinance My Debt?

As you know, I am a HUGE Dave Ramsey fan and I also have a degree in psychology. I certainly understand that debt is not a math problem and is a mental problem. You have to fix the spending and the mental side of things before you start to focus on the math problem. Are you thinking “Should I refinance my debt”? Here are some things to consider before refinancing your debt.

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Refinancing loans has recently become very popular in Scandinavia and the USA, where people in general have a high amount of debt. However, refinancing isn’t the only solution but it can help in certain situations.

Getting out of debt is 80% mental.

paying off debt

 

Study after study has shown that getting out of debt is a psychological problem not a math problem. Refinancing debt focuses on the math problem not the psychological problem. However, there are some instances where refinancing would be a good idea.

Are You Actively Working On Paying Off Debt?

Refinancing is not going to fix your debt problem. The problem is spending money you don’t have. You have to work on fixing the mental side of the problem before fixing the math side. You have to suffer so to speak through paying off debt so that you hopefully won’t fall back into debt. I would suggest intensely paying off debt for at least 6 months before refinancing debt.

For tips on paying off debt:

Why you Should Start Paying Off Your Debt

5 Tips Tp Payoff Debt Quick!

Do you have a solid zero-based budget?

If you are actively paying off debt, you should have a written budget. A zero-based budget is a little different from just a regular budget in that you budget every dollar. I also had a written budget but it wasn’t until I started doing a zero-based budget that we were able to get intense with paying off debt. Having a zero-based budget is like giving yourself a raise. If you don’t have a solid budget, refinancing isn’t going to help in the long run.

For tips on budgeting:

How to Make A Budget and Stick to It

How to Budget When There Isn’t Enough To Go Around

5 Sensible Budgeting Tips

How To Get Your Spouse On Board with a Budget

Are your payments more than your income?

When considering if you should refinance your loans, one thing to consider is how much money you have coming in. If your payments are significantly more than the income coming in, refinancing could be a temporary solution to help. The problem with that is, you can’t get comfortable. You still have to continue with the same intensity and not lose steam. The biggest problem with refinancing is that you can breathe again and that causes people to slow down. However, IF you have been intense with your budget and paying off debt for 6 months, you are more likely to follow through. You don’t want the debt hanging around forever.

Is it going to take longer than 2 years to pay off your debt?

If you have a huge amount of debt, like student loans for instance, and it will still take longer than 2 years to payoff even with being intense then refinancing may be a good option. If you can have it paid off in less than 2 years and that should be your goal, then it may not make sense to refinance. Refinancing can cost money but it doesn’t always. Basically this comes down to math and if the cost of refinancing is worth it in the long run.

For example:

You have $25,000 in student loan debt and your interest rate is 6.25%. If you pay is off in 24 months, you pay roughly $1600 in interest in those 24 months.

If you refinance through a lender like Lendedu at 3%, you cut that in half at roughly $800 in interest for those 24 months. You save $800 over 2 years but if you can have it paid off quicker than that you are talking about maybe $400-$600 depending on how long it takes you. If it will take you longer than that, it is worth looking into.

If you have a much larger amount of student loan debt, you could save even more by refinancing with Lendedu. The average student loan debt is over $30,000 which means that a lot of people have more than that. If you have $50,000 in student loans, the amount you could save over 2 years is over $3000 if you refinance.

The great thing about Lendedu is that they refinance federal and private student loans and it’s FREE to check them out. They find numerous offers for you so that you can find the lowest rate. Their average customer saves over $14,000! Now if you can save that much then definitely do it. But you want to remember what your end goal is and that is to be debt free. If you are doing the other things I have mentioned then I think refinancing could be a good thing.

Should I Refinance My Debt?

So, if you are still thinking if you should refinance like people in Scandinavia and the USA, where people in general have a high amount of debt. You want to look at the big picture and make sure that refinancing is going to further your long-term goals. That is why you want to focus on paying off debt before refinancing. If you have a low income and high debt then refinancing may be the best option so that you can focus on paying off debt quicker. Just make sure if you do refinance that you continue to be intense with paying off your debt.

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9 comments on “Should I Refinance My Debt?

  1. Ashley, great advice. I appreciate your take on debt being a mental problem not a math problem. This couldn’t be more true. We have to get our minds right in order to get our finances in order.

  2. Great article Ashley!
    I’m so glad we a paying off our flexi loan, my partner wanted to refinance but I knew we could smash it down if we set our minds to it, like you say it’s mental!

  3. That Scandinavian link is weird, with the double-dash.

    Anyways, I completely agree someone needs to already be active in paying off debt before considering refinancing. If you haven’t changed the behavior, it can easily make things worse if you’re not careful!

  4. Debt is truly a thing of the mind. Its a mindset. Once you change your mindset and reprogram your mind, the debts are settled. From that period, you will learn how to cut down your excesses and lead a life free of debt.

  5. This is where I am at – realizing that debt is a mental problem, not just a math issue. My hubby and I are dedicating 2018 to paying off our debt, we were considering refinancing, but after reading this – I think we will wait a bit to see how we do. It won’t help if we don’t change our mindsets and just rack up more debt again.

  6. I love that you point out that debt is a mental problem, not a math one. I’ve been working on this myself and think it’s very important to retrain your brain so you don’t end up back in the same scenario! I’ve always leaned away from refinancing, but I really like your idea to pay the debt for 6 months first so that you can feel the “pain” of paying debt – and hopefully learn from it. Great suggestion!

  7. Ashley, thanks so much for this very informative post. I never really thought of debt as a mental problem, however I can really see that as a true statement. Like most things it’s all about your mindset.

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