Being stuck with a high-interest loan can feel like you're dragging a huge weight around your neck. Sometimes you find yourself with a high-interest loan because you didn't have any other options. Other times, you might simply have not realized that better alternatives were out there. Or, your low-interest loan or credit card might have suddenly jumped to a higher interest rate that you no longer can pay off. When you find yourself with a high-interest loan, you don't have to be stuck with it forever.
Consolidation Loans
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Consolidating all your high-interest loans into one lower-interest loan is one way you can get rid of high-interest accounts. Some people do this with high-interest student loans, for example. However, getting these loans isn't easy. To qualify for a low interest consolidated loan, you'll need a strong credit score of at least at 700 or higher. If your credit score isn't high enough, you might need to make on-time monthly payments on all your current debt for a few months or longer to raise your score. Some lenders may let you put up collateral to help qualify for a lower-interest loan. Look at banks or other financial institutions first when seeking out consolidated loans. If you have good credit, consider peer-to-peer loans such as those offered by Upstart or Lending Club. These services sometimes offer lower-interest loans than banks.
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Warning
Federal student loans can qualify for income-based repayment or other public service options that forgive the remaining debt after 10 or 20 years, depending on the terms. If you consolidate federal student loans, you might miss out on these options.
Negotiating Lower Interest Rates
Sometimes all you need to do is talk to your loan provider. In fact, according to U.S. News & World Report, two-thirds of people who ask for lower credit card interest rates get them. In many situations, high-interest rates are given to borrowers who have poor credit or no credit, and thus are riskier investments. If you have made your payments faithfully and improved your credit score, then your lender might be open to the idea of lowering your interest rate. If you've received offers for cards that have lower interest rates, you can also use this as a negotiating tactic. Although not a guarantee, it's certainly worth taking the time to make that phone call, since the pay-off can be great.
Transferring Credit Card Balances
If your loan is in the form of a high-interest credit card, consider transferring the balance to a new lower-interest or zero-interest card. Some cards will offer new cardholders a zero-interest deal for a certain number of months. In this case, you can transfer the balance and save quite a bit of money on interest. Just remember that transfers always come with a small fee, so make sure the amount you're saving in interest exceeds the credit card transfer fee. In addition, when your promotional or discounted interest rate ends, make sure the regular interest rate is still lower than the weighted rate from your current credit cards.
Warning
Watch out for hidden fees and surprise interest-rate hikes before taking out a lower-interest loan or credit card and transferring what you owe there. Some credit cards, for example, will cancel your zero-interest deal if you miss one monthly payment.
Refinancing Your Loan
Refinancing your current loan at a lower interest rate is another way that you can get rid of a high-interest loan. This option is especially popular for people who have mortgage loans. Getting the refinanced loan isn't always easy, however. To get the best interest rates, you should ideally have a credit score of 740 or higher. You'll also want to lower your debt-to-income ratio by paying down credit cards. Finally, make sure that you can afford the closing costs. A homeowner might need to put down extra money in order to lock in a lower interest rate that lasts for the life of the loan.
Getting rid of high-interest loans can require a bit of finagling, creativity, and perseverance. But if you're willing to put yourself out there, make a few phone calls and ask pertinent questions, you may find yourself with lower-interest loans that are much easier to handle.