Which Way Should We Refinance Our Debt?

Up until now, we’ve been very focus on saving money in ways that we can handle on our own.  Things like:

• Hanging clothes out to dry
• Growing our own vegetables
• Meal Planning
• Making our own laundry detergent
• Shopping yard sales
• and much, much more!

Everything we’ve done to save money, up until now has been things that I could research the crap out of on the internet (or Pinterest, haha) and then implement in, say, and afternoon.

However, beyond constantly working to stick to a strict budget, we’ve about exhausted all of our options for saving money on our own, and we decided it was possibly time to go talk to a bank about refinancing some of our debt.  We had 3 options in mind: a credit card balance transfer, a personal loan, or a home equity loan.

The Debt

Ultimately, we’re looking to refinance 3 debts:

• $6,000 in credit card debt
  • at 0% interest currently, but will jump to just over 15% in July
  • Would cost us $1, 272.09 in interest and take 284 months to pay it off
• $6,200 in auto debt
  • 7.8% + $78/mo in insurance…crazy!!!
  • Would cost us $773.70 in interest and take us 36 more months to pay it off
• $31,000 of auto debt debt
  • 7.8% interest + crazy interest too!
  • Would cost us $5,952.21 in interest and take us 54 more months to pay off

We would ultimately like to refinance all of it, but depending upon which loan we choose, we may not be able to refinance all of it, but we’ll try to get as much as possible, which I’ll explain in each scenario:

The Balance Transfer

Lately, I’ve been doing some freelance writing for MagnifyMoney, an amazing personal finance site dedicated to helping people like me have access to tons of resources to help them get out of debt.  Doing this writing has opened my eyes to all of the amazing balance transfer options out there.  My choice would be the Chase Slate offer, a  nearly perfect balance transfer.  This balance transfer offers:

• 0% Balance Transfer fee
• 0% for 15 months

We would need to pay $400 per month, but it would save us $1,272 in interest, and save us 269 months!  However, we would need to be approved for at least a $6,000 credit limit, which may be tough.

The other option is the Citi Simplicity offer, which boasts:

• 3% balance transfer fee
• 0% APR for 21 months.

We would pay $180 for the 3% balance transfer fee, and would have to pay $294 each month, but even after the balance transfer fee we would save $1,092 in interest and would shave 263 months off paying off our debt.

Out of the two of these offers, I would honestly go with the Citi Simplicity offer because of the longer time period, even though it would save us a little less money.  We wouldn’t be able to refinance the auto loan debt with the balance transfer options, but the interest would be so minimal it would definitely be worth considering.

The Personal Loan

The bank of our choice (local, friendly service – we love them!) offers personal loans up to $15,000 with rates of 10.7%.  Obviously, we wouldn’t be able to refinance all of the debt, but we could refinance both the credit card and the smaller auto loan debt because $6,000 + $6,200 = $12,200.  Over the course of 5 years, this would cost us:

• $263.44 per month
• $3,606.16 in interest
• Would actually cost us money to refinance!

We weren’t actually considering this option, but I felt like we should point it out!

The Home Equity Loan

We are very fortunate to have bought our house for about 50% of it’s value, meaning that the second we closed on it, we had instant home equity.  I had held off refinancing with a home equity loan because I was nervous about qualifying with our credit and being able to prove my income as a freelancer, but now that The Big Guy has a regular job, I believe it is going to be ok!

Our local bank offers home equity loans at 3.9% interest for 5 years, which would effectively cut our interest rates in half!  They will finance up to 90% of the home’s value, and assuming our home’s value comes in at $85,000 or higher, we will be able to refinance all of our debt with the home equity loan.  Doing this will cost/save us:

• Cost $802.83 per month in payments
• Cost us $4,469.89 in interest
• Save us $6,336.11 in interest
• Cut almost 2 years off of paying this debt off!

That monthly payment of $802.83 is less than we’re paying in car payments alone each month, and we could actually pay at least an extra $15o per month towards the debt, shaving months and several hundred dollars in interest!

However, we’re not sure that our house will appraise high enough to refinance it all, but if we only refinanced $12,200 for the smaller auto loan and the credit card, then it would cost/save us:

• Cost us $224.13 per month in payments
• Cost us $1,247.89 in interest
• Save us $3,605.90 in interest
• Would actually take longer to pay it off, but I’m confident that we could pay at least an extra $150 per month towards it to pay it off faster!

So there are our options, and to be honest there are quite a few of them!  Obviously, we’re leaning towards the home equity loan, and have actually started the process of getting our home appraised, etc, but we’re confident that it’s going to work out for the best.

Which option do you think is best?  Have you ever refinanced debt with a balance transfer, personal loan, or home equity loan? Let me know about your experience in the comments!

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