Considerations on Consolidating Debt
When you’re in debt, the notion of consolidating them all into one payment might sound daunting. It can provide you with instant relief depending on how you do it, though. Imagine having the following:
• A lower monthly payment
• A lower interest rate
• More time to pay off your loans.
When you consolidate a group of loans, that’s what it earns you. You instantly pay less each month as a minimum payment, but the trick to making a serious dent in your total amount owed comes from paying everything you regularly do to the consolidated loan. This results in paying it off faster. Let’s look at how that works.
Lower Monthly Payments
The fact that you pay less each month might not seem obvious, because let’s say you have three credit cards, and you owe $4,000 on one, $2,000 on another, and $1,000 on the third one. Separately, they equal $7,000, and together, they equal the same amount. Your total amount owed remains the same, but when you consolidate loans through a company like Symple Lending, you typically get a lower interest rate than the various credit cards offer. Each card mandates a minimum payment which varies depending on the card and the interest rate on the credit card, but the consolidated loan has one payment and a lower interest rate.
How the Lower Interest Rate Helps
Every month, your creditors each charge you interest on the money they loaned you. One might charge 23%, another 18%, and another 24%. The key to successful consolidation lies in finding a loan or balance transfer credit card with a lower interest rate than the lowest credit card interest rate you already have. Do not consolidate with a loan or credit card that charges the same or higher interest than you currently have, according to Market Watch.
Let’s say that the $4,000 credit card charges 23% interest. That adds $920 to what you owe every year! Credit card companies spread this out over the year, so you pay a little bit of it every month – about $76 per month using our example.
Loan Pay-Off Time
Credit cards give you forever to pay them back, as long as you make the minimum payments. That might theoretically sound great, but it just lets them charge you interest forever. When you consolidate the three loans, for example, into one debt, you set a specific repayment period if you do it using a loan. Loans usually provide two to seven years for repayment, according to Nerd Wallet. Balance transfer credit cards provide a zero percent interest rate or a low interest rate for qualified individuals for six to 18 months.
Get Started Erasing Your Debt
Consolidate your loans today through corporations in the same category as Symple Lending or using a balance transfer credit card. If you’ve kept your credit score healthy but want to get out from under your debt, consider debt consolidation.
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