Debt restructuring refers to changing the terms of your debt repayment. This can be done by negotiating terms of your current loan, transferring debt to a new loan or consolidating debt. This is done for benefits like lower interest rates, lower monthly payments or longer repayment terms. Debt restructuring is a strategy used by both businesses and individuals.
Callable bonds can be recalled for payment by the issuing company prior to their date of maturity. This allows the company to recall their current bonds in times when interest rates have dropped and reissue the debt at a lower interest rate. Lower interest rates save the company money over the life of the debt. On the downside, there may be fees associated with recalling a callable bond before its maturity. These must be weighed against the potential savings in interest when a company decides whether to restructure its debt this way.
Individuals can restructure debt by using a mortgage or home equity loan to pay off unsecured debt, such as credit card balances. The interest rates on mortgages are among the lowest available to consumers and can result in significant savings. However, consumers should remember that if they fall behind on a home equity loan or mortgage, their home may face foreclosure.
0% APR Credit Card Trick
Another option for individuals to restructure their debt is a technique known as the “0% APR credit card trick.” This takes advantage of introductory 0% APR interest rate some credit cards offer. These cards offer 0% interest on the card balance for the first three to 12 months. This represents a huge savings in interest, given that many cards charge 18% interest or higher. When the introductory rate expires, you can transfer the balance to a new card with 0% interest. However, there may be charges for transferring the balance too soon after the introductory rate ends or the card could charge you other fees. So carefully examine card terms.
Negotiate with Lender
Contact your current lender and try to negotiate a change to your current loan terms. You may be able to extend the payment period of your loan, which will lower monthly payments. You can also ask for a lower interest rate, if you are currently paying rates higher than the market average. You may even be able get your debt reduced if, for example, you owe much more on your credit cards than you initially charged. Your lender is under no obligation to adjust the terms, but it won't hurt to ask and you may just get a break.
Kaylee Finn began writing professionally for various websites in 2009, primarily contributing articles covering topics in business personal finance. She brings expertise in the areas of taxes, student loans and debt management to her writing. She received her Bachelor of Science in system dynamics from Worcester Polytechnic Institute.