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Manage a Mix of Debt

You have worked hard to eliminate your credit card debt. Now, you realize that there is other debt, such as an auto loan, that you’d like to take care of through refinancing or debt consolidation. Keep the following considerations in mind when exploring your options.

Has your credit score improved/worsened since the original financing?

A young couple discussing finances.

Your credit score is an important factor in determining the interest rate you qualify for, so you need to know your credit score to properly evaluate the potential benefits of refinancing your debt.

Will refinancing provide a lower interest rate?

Generally speaking, a lower credit score results in a higher interest rate. If you need to improve your score, you could focus on a variety of factors that contribute to your credit score, including on-time bill payments, amount of debt load and length of credit history.

Will refinancing extend your loan term?

If you refinance a car loan to a longer term, you may experience lower monthly payments. However, you could end up paying more in interest over time.

Do not pay off car loans with home equity loans

You will be borrowing against the value of your house while extending the term of the auto loan, which will likely extend beyond the life of your vehicle.

Are there any prepayment penalties with your current loan?

Be sure to closely read your original loan documents to determine if there are any prepayment penalties should you choose to refinance. Any penalties/costs should be included in your refinancing evaluation.

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