In today’s world, managing personal debt can be a significant challenge. Credit cards, loans, and other forms of debt can accumulate quickly and become a financial burden. However, it’s essential to take control of your financial situation before it spirals uncontrollably.

Undertaking a refinancing exercise can help you manage your debt more effectively and potentially save you money in the long run. This may not be suitable for everyone as it depends on individual circumstances, so it’s worth considering certain factors before making a final decision.

Understand your current debt situation

Before embarking, it’s crucial to have a clear understanding of your current debt situation.

Start by gathering all the necessary information, including a detailed list of all your debts and outstanding obligations, outstanding balances, interest rates, monthly payments, the type of debt you have, and how long you have left on your term.   

Knowing the specifics of your debt will provide a solid foundation for your refinancing strategy.

Review your credit score and credit history

Your credit score and credit history play a significant role in your ability to refinance debt. Lenders will typically check this information through a ‘hard inquiry’ to assess your creditworthiness. The better your credit score, the more likely you are to qualify for better refinancing terms, such as lower interest rates.

It should be noted that such an inquiry may temporarily cause your credit score to drop slightly. However, the money you save through refinancing should outweigh the negative effect of a credit score dip. Furthermore, as you pay off your new loan over time, your credit score will likely improve as the result of demonstrating that you are managing the new debt responsibly.

Before refinancing, you should take steps to improve your credit score if necessary. Paying bills on time and reducing outstanding balances can boost your credit score over time.

To check your credit score, you can use free online services or request a credit report from a credit bureau. You can also check your credit history to ensure that the information recorded is accurate and up to date.

Explore your refinancing options

There are several options for refinancing debt, each with its own advantages and drawbacks. Common methods include:

  • Balance Transfer: If you have credit card debt, you could consider transferring your balance to a credit card with a lower interest rate or a promotional 0% APR offer. Keep an eye on balance transfer fees and the duration of the introductory rate.
  • Personal Loans: Personal loans from banks or finance houses can be used to consolidate multiple debts into a single, manageable loan with a fixed interest rate. This simplifies your debt repayment and may offer lower interest rates compared to credit cards.
  • Home Equity Release: If you own a home, you can approach your mortgage lender to explore the potential of obtaining an additional mortgage advance to pay off high-interest debts. Such loans typically offer lower interest rates, but they use your home as collateral and you will be paying your debt off over a longer period, so you may end up paying more in the long-term. Consider the risks carefully.

Compare offers

Once you’ve chosen a refinancing method, start comparing offers from different lenders. Look for the terms that best suit your financial goals including interest rates, loan terms, and fees. Be sure to calculate the total cost of the new loan to ensure it’s a more affordable option.

Create a repayment plan

Set a budget that allows you to make consistent payments on your refinanced debt. Stick to this plan to ensure you steadily reduce your debt and avoid accumulating more.

Seek advice

If you’re feeling overwhelmed or unsure about the best course of action, consider seeking advice. This could be from a financial adviser, a lender, a bank, or the Citizens Advice Bureau in Jersey or Guernsey.

Refinancing consumer debt as a personal individual can provide relief from financial stress and help you regain control of your finances. However, it’s crucial to approach the process with careful planning and consideration.