As the first middle year comes to an end – it is useful to look at how you have changed and made efforts to start this new decade on the right financial foot. By looking at your debts and how the future would look if you could get those under control and working to help you rather than stacking up against you. A simple solution to assist you with the mounds of debt could be a debt consolidation loan.
Debt consolidation is the process of paying out all your current debt with one single loan. This helps turn the focus to one single lender rather than many which can alleviate the financial burden greatly.
Choosing a consolidation loan often brings the benefit of a lower interest rate. Instead of paying various credit cards and personal loans that hold interest rates between 10-20%, consolidating may provide a lower rate especially if you’re able to secure the loan within your home loan.
When you have a few different loans getting charged at high rates, the total interest paid monthly and overall will be greater than the interest incurred from a lump sum amount with a slightly lower rate.
Another advantage that can be attracted from debt consolidation is the ability to repay loans faster than leaving them in their original state. If you’re able to decrease your payments to one every month and the interest overall is decreased, your monthly payment requirement will be decreased as well.
With the reduction in amount owed, you can put the additional cash towards the payment which will decrease your principal amount much more quickly and will reduce further the interest you end up paying.
Here is an example of how increasing the amount you pay each month on a loan can decrease the time and money spent overall. If you have a loan for $100,000 over 25 years with an interest rate of 6.15% you will end up paying an additional $96,000 in interest at the end of the 25 years.
By increasing your monthly payment by $100, which equates to $25 per week, you can save $28,000 in interest and your loan will be repaid 6 years and 5 months earlier. That is a massive saving on time and money!
To sum up, debt consolidation has 3 key benefits:
1. Reduction of Repayment Period
Debt consolidation will allow you to free up additional disposable income by giving you a lower interest rate which means the amount owed is lower. With the additional income, putting it back towards the caveat loan, will pay the loan down faster.
2. Save Money
With a debt consolidation loan you are able to save money through the lower interest rate. Typically, many credit cards hold rates upwards of 15% where as with debt consolidation you may get a rate as low as 6.6% which is a difference of over 9%. This difference can end up saving thousands of dollars.
3. Save Time
A debt consolidation loan allows you to make one payment a month rather than several payments. Additionally, through the option of using the increased income to pay down the loan, you can take years off the duration.