How Debt Consolidation Can Save You Money?

An overwhelming amount of debt never results into pretty consequences. Those harassing phone calls from the creditors will make your life worse than hell. Problem intensifies when a debt collection company intervenes. There is no use of changing your phone number and going out elsewhere. They will always track your movement and reach you until and unless payment is cleared.

Concept behind Debt Consolidation

Debt consolidation is a way to eliminate the existing debts by reducing payable amount to a level that you can comfortably afford. In laymen’s language, you take out a loan just to pay off your old loans. You can approach a bank or request any non-profit agency for help. Alternatively, you can transfer your current balances on high-interest credit cards to low-cost ones. It is also possible to transfer your balance to a 0% credit card which means you don’t need to pay anything for at least six months. This time period may also extent to 18 months at max.

How debt consolidation will save your money

Any of the above-stated debt consolidation plans can ensure a substantial amount of saving. Let me clarify this point with help of a suitable example. If you have taken out $15,000 at 20% APR, you will have to pay $600 per month. This way, you will require 17 long years to clear the loan and total payment will amount to $25,611. Now compare the picture with a debt consolidation loan at 9.35%. You could be debt free within just 48 months and will end up paying $18,112 in total. It clearly shows that you can save $7,500 and pay off your debts much faster.

Credit counseling for debt consolidation

Credit counseling is a much favored practice to consolidate debts. You need to hire a credit counselor who will present your case to the creditors. The counselor prepares a plan and talks to the creditors about negotiation of interest rate. Once the plan is successful, i.e. the creditors give a green signal to rate negotiation; you have to make a payment to the credit counseling agency which will disburse the amount among your creditors. It will continue until your debt gets a clearance status. You can save a decent amount through credit counseling, however, the exact figure is hard to estimate and depends on how lower the negotiated interest rate is.

Save money with balance transfer

If you own a mix of high and low-interest credit cards, transfer the balances on the former types to later ones. With a debt of $15,000 at 20% average APR, you have to pay only $558 to pay off your debts within 36 months. If that much would have been transferred to a 12% interest rate credit card, it would have required you to pay $499. You could have saved $60 per month.

Which credit consolidation option will work for you depends on your credit health at present. If you are confused about making up your mind, consult an analyst and then decide a plan for consolidation of credits.

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