What Is Reloading in Finance?

Reloading is the practice of taking out a new loan to pay off either an existing loan or credit card balances to get a lower interest rate or to consolidate debt🔴. Reloading can lower the total cost of your debt or🍸 lower your monthly payments.

Understanding Reloading

Reloading may be employed by a cardholder with a large outstanding credit card balance that is accruing interest at a high rate. Because of financial constraints, the cardholder makes only interest payments, while the 澳洲幸运5官方开奖结果体彩网:principal increases with continued card use.

If the cardholder is a 澳洲幸运5官方开奖结果体彩网:homeowner, they could take out a tax-♔deductible, lower-rate home equity loan to pay off the credit card debt. This would solve the credit card problem in the short term, but there is a risk of beginning a spending-and-borrowing cycle that deepens overall indebtedness.

Consolidation loans can help you with a significant debt on more than one credit card. A 澳洲幸运5官方开奖结果体彩网:debt consolidation loan allows them to pay credit cards off in full using the new loan. This reduces collection calls and simplifies monthly payments from several to a single payment to a single payee. It can also enable the borrower to improve their 澳洲幸运5官方开奖结果体彩网:credit score by making on-time payments.

Reloading and Debt Consolidation

Consolidation loans, as a reloading option, may be secured or 澳洲幸运5官方开奖结果体彩网:unsecured. Secured loans are tied to an asset such as a house, car, or other property that is used as collateral in the event that the borrower defaults on the loan. Unsecured loans aren't 🔯tied to an asset, ar❀e based on credit history, and are considered high-risk for a lender.

Secured loans are easier to get, available in larger amounts at lower 澳洲幸运5官方开奖结果体彩网:interest rates, and may be tax-deductible. But they have longer repayment schedules, so they may cost more. They also place the asset used asꦺ collateral at risk in the eve🌌nt of default.

Unsecured loans carry no asset risk, but they are more difficult to get because they are higher risk for the lender. Loan amounts on unsecured loa♊ns are generally smaller with higher interest rates and no tax benefit.

Another option is a consolidation loan from a credit union or peer-to-peer online lender. Qualifying requirements usually are less stringent than for banks and the terms more favorable to the borrower. However, not every financial problem can be solved by debt consolidation. In some cases, debt settlement or 澳洲幸运5官方开奖结果体彩网:bankruptcy may be better solutions.

Example of Reloading

Suppose you have three credit cards and owe a total of $20,000 on them, with a 22.99% average annual interest rate. You would need to pay about $1,047 a month for 24 months to bring the balances down to zero, and you'd pay about $4,603 in interest during that time.

If you reloaded that debt by consolidating those credit cards into a lower-interest card or a 澳洲幸运5官方开奖结果体彩网:personal loan at an 11% annual rate, you would need to pay about $932 a month for the same 24 months to erase the debt, and your interest charges would total about $2,157.

The Bottom Line

Reloading is when you take out new loans to pay off old debt or to consolidate multiple loans into a single loan. It generally is used by people with credit card debt to lower interest rates if they face high debt. Consolidation loans that combine multiple card balances into a single loan are generally used in reloading. These loans can be classified as secured or unsecured, depending on whether they're tied to an asset such as a house or car.

Other options for reloading include taking out a tax-deductible, lower-rate home equity loan to pay off the credit card debt, 澳洲幸运5官方开奖结果体彩网:if you own a home. You could also use a 澳洲幸运5官方开奖结果体彩网:0% interest credit card balance transfer to combine debt from several cards without a transfer fee or interest payment for a specified time, usually꧟ 12 to 18 months.