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Like many other folks nowadays, I'm trying to lower my debtload, and one of the ways would be to reduce the interest that I'm paying on my debt (currently around 9/10%). I've tried the debt consolidation route, but no banks are offering anything under 12% around here.

So I'm wondering, what other options are at my disposal to refinance, but get a better interest rate so I can start paying down the principal and get out of debt.

  • Which country are the loans being held in? – Dilip Sarwate Mar 26 '13 at 20:15
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Checked the rates an Lending Club right now (I have some investments there), and the lowest rate (A1 rating, 780+ FICO, 3000 loan for 36 months) is ~5.5% APR.

But A1 rating is the best of the best, most A notes are at around 7-8% (i.e.: excellent credit notes). So 9-10% is pretty decent. If you think you are "excellent" - you can try to consolidate through Lending Club or other social lending platforms, hopefully it will give you much better rate than a bank.

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This depends largely on what your credit rating is like and what kinds of debt you have (car loans, credit card balances, mortgages, etc.)

You might be able to find a 0% (or low-percent) balance transfer offer if it's credit card debt. There probably will be a fee to transfer the money to the card, and you have to be diligent about paying your bill on time, or else your rate will skyrocket.

You might also consider LendingClub.com or Prosper.com.

Beyond that, work on paying off your lowest balance first. When that's gone, you can snowball that payment into the next-lowest balance.

  • Credit card balance transfer fees are usually around 5%, so take that into the account, if the 0% APR period is 6 months, the fee makes it effectively 10% APR. – littleadv Aug 13 '11 at 8:03
  • Sounds like the fees it'd be the same story and with more management to boot? – canadiancreed Aug 13 '11 at 14:42
  • Some cards still offer a promotional 0% on balance transfers when you open a new card and do a balance transfer right away. That's what I did to get rid of some lingering credit card debt about a year and a half ago. – Yamikuronue Mar 26 '13 at 20:50
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The way I've seen people do this is by refinancing their home. Not a great route, but since the debt is secured by property, it merits a lower rate. Note this requires you to have equity in your home, and I imagine there's some origination fees.

I suppose you could also try finding "zero percent" credit cards if your credit is good and they still offer them. The way I understand them to work is you pay an upfront fee (no idea why they cant just call it interest) of perhaps 3 percent and as long as you're making timely payments and following the contract, you've got X months to attack the principle directly. Dangerous though if you don't pay; penalty rates will make 9 percent look like easy street.

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    It also means that he OP would convert unsecured debt into secured debt, which might not be a good idea. Not to mention that even if he has equity in the house and prices in his market continue to fall, he'll be reducing the equity cushion if he has to make an unplanned move. – Timo Geusch Aug 14 '11 at 4:29
  • Sadly thats' not an option, as I dont' own a home. – canadiancreed Aug 23 '11 at 0:59
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The best way to reduce your debt load is to just pay it off entirely.

If you are trying to refinance a home loan, I would take a look at what your balance is and look to save 15% to 20% of that and bring that to the table as part of your refinance offer. In the post-sub-prime environment we are in, the banks are not looking to take risks.

If this is a credit card balance you are trying to pay off, you could look at one of the 0% balance transfer offers. I used one to get out from under a 12.99% APR while I was paying it off. My transfer fee was somewhere in the 3% to 5% range, which is at least a 7.99% discount, up to a 9.99% discount. You essentially pay a year's interest upfront via the 'balance transfer fee,' but the benefit is you accrue no more interest over the term of the offer (typically six months to a year, based on your credit history). This is about the only 'tool' you can use to outright get from under a higher interest rate.

One other thing I've done with our car loan is pay a little bit extra each month, which in turn reduces the amount of the daily interest that accrues on the loan. I think it is down to about $3/day whereas it was about $5/day when I realized what was going on. (I say realize because it was a car loan my wife took out before we married and I was not used to having a car note.)

How many loans do you have outstanding? How much are you budgeting to pay off debt? Focus on the smallest one first and then when it's paid off, just add that payment amount to the next smallest debt and before you know it, you will be debt free. If you really want to get out of debt, you must examine how you are spending your money. For instance, I might purchase at the most, two video games a year at full price. It has to be a game that I will play immediately. I previously would just buy video games willy-nilly and as a result, I have a stack of unplayed games that I'm 'behind' on playing.

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