It may seem like a downward spiral when you miss installment payments. The debt collectors are after you, your credit rating is lower and now other lenders are coming after you because your credit rating dropped.

Taking the initiative prior to falling into this trap is one way of avoiding this downward spiral. Refinancing all of your debt in such a manner that your monthly installment payments actually drop can be a solution for some people. Not everyone can take advantage of this approach, but it is worth checking to see if you qualify. If you do , chances are that your installment payments can be dropped significantly. Consumers should also remember how they got into this situation and avoid the pitfalls that got them there once they refinance.

Can You Refinance to Lower your Installment Payments

Many people have a few credit cards and it is often these credit cards that get them into trouble with their installment payments. The combination of high interest rates ( some as high as 28% ) and short term payment requirements drive the monthly installment payment skyward. In addition, when you do make your monthly payment, very little actually goes to reducing the principle so you do not see much relief in terms in total monthly installment payments.

Car loans and furniture loans are also culprits in the discussion about installment loans. Typically these will be five year loans with more competitive interest rates. Still your monthly installment payments may be more than you can manage when you add your mortgage, car loans and credit card payments together.

To answer the question about whether you can refinance, you will need to assess what additional value you have in your home that is above the value of your mortgage. Many companies are being very cautious today when it comes to mortgages due to the crisis that occurred in the United States during 2009. However, as a general rule you can take out a mortgage on your home for up to 75% of the value of your home. Some companies may go higher if you have great credit ratings and solid jobs, but credit remains very tight at time of writing.

If you own a home take 75% of your homes value and subtract the value of your current mortgage against your home including any second mortgages if you have one of these. The difference, if it is positive is the amount that you can look to the banks for refinancing and lowering your monthly installment payments.

Here is an example. If your home is worth $400k, then 75% if your home is $300k. This is the amount of mortgage financing you may be able to obtain on your home. Remember that all banks are being very cautious these days so you may have to shop around to get even this amount.

If your current mortgage is $100k for example, then $300 less $100 leaves you with $200 k in refinancing that you might be able to use towards reducing other loans and credit card balances. Each time you pay down a credit card payment, your monthly installment payment will drop. Remember that you now have a larger monthly installment payment on your mortgage, however it will be not as large as the loans you are paying off due the fact that you have a very competitive interest rate and a much longer term.

Refinancing is not For Everyone

Many consumers may not have the unused equity in their home as per the above example, or they may just not want to add to their existing mortgage preferring to go without while they are paying installment payments on credit cards and other loans.

There is absolutely nothing wrong with this approach. It is really a question of what you can deal with. Paying off loans is by far the best approach. Once the loan is reduced to zero, you immediately get some relief because that is one installment payment you no longer need to make.  In addition, you have shown that you can make monthly installment payments and be counted on to repay a loan. Immediately your credit rating  gets a plus mark on it and this is a good thing when you go to borrow money in the future.

If you cannot meet the monthly installment payments each month and there is no other recourse, you may want to talk to a refinancing specialist to get some help on refinancing and reducing your installment payments every month. Consumers in this situation, should remember that the worst thing they can do is to ignore their commitments. Left long enough, your loan will be referred to a debt collector and they are not nice people  to deal with.

Far better to face your finances up front and negotiate directly with the lenders. Once your debt is handed off to a debt collector the lender is only going to get cents on the dollar of what is owed to them. If you can negotiate with them to pay them something less than what you are paying now, but more than what the lenders will get from a debt collector, you are both winners.

This situation only works for consumers in dire financial circumstances. The lenders are not likely going to cooperate in refinancing your installment payments if they think you have a lot of equity that could be used to pay your loan. Often the best approach is to talk to a financial expert who can assist you in this area. There will be a fee of course for their services, however this may be money well spent if you are able to extricate yourself from a difficult financial situation and reduce your installment payments at the same time.

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