What is Debt Consolidation? Will it help you?
Debt consolidation is a loan or sometimes a consolidation mortgage from a bank or other financial institution. This consolidation loan is the sum of all or any of your unsecured debts combined into one single loan and one single payment. Usually the “new” consolidation loan is at a fixed lower interest rate.
Example, Mary has 3 credit cards, 1 line of credit and 1 car payment,
Credit Card 1 = $2500.00 with a payment of $90.38
Credit Card 2 = $7500.00 with a payment of $271.14
Credit Card 3 = $3800.00 with a payment of $141.22
Line of Credit = $10,000.00 with a payment of $299.71
Car Payment = $18675 with a payment of $620.28
Every month Mary is required to pay $1422.73 on all her debt.
Consolidation Loan for all Mary’s debt will combine all her debt, spread the payment over 5 years. Her new monthly consolidation loan payment will be $841.06 for 5 years
Consolidation loans can be an successful solution for cash flow or monthly money management.
Considerations regarding consolidation loans.
In order to qualify for a consolidation loan, you will need an acceptable credit score and sufficient income to support the payment of the loan.
There is no cost to apply or qualify for a consolidation loan, however a consolidation mortgage may require a current appraisal of the property or home securing the loan.
Saves you money due to reduced interest rates, most credit cards are much higher than any bank loans.
Stretches the timeline of the payments, so although you are paying lower rates of interest, you could be paying for a longer time period.
Cut up and cancel all credit cards that are being consolidated. Managing a consolidation loan payment will be an effective solution only if further debt is not accumulated.