Debt consolidation could save you thousands of dollars. Here’s how.
Debt can put a big strain on your finances (and your mental health). It hurts your credit score, hinders your ability to save for your goals and can cut your budget enough to force you to take on more debt to make ends meet.
If you are in this situation, a Debt consolidation loan Can be a lifesaver. Not only can it make managing your payments easier, but it can also save you thousands of dollars, both now and in the future. In this article, we’ll examine how debt consolidation can save you money and why. Best course of action If you are struggling to keep up with your debt load.
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How Debt Consolidation Can Save You Thousands of Dollars
Debt consolidation Might be worth it For many reasons. Here are some big ones.
Low interest rates
One of the main benefits of debt consolidation is that it can help you get a lower interest rate. Average credit card rates are currently around 20%, and the average personal loan rate is around 11%. High rates can make it harder to pay off your loans and cost you thousands of dollars in repayments.
When you consolidate your debt, you take out a new loan to pay off your entire balance. This loan usually comes with a lower interest rate than what you were paying before. Currently, you can get debt consolidation for 7% or less, depending on your needs Credit score.
How much can it save you? Imagine you have $11,000 in credit card debt (close to the current average for U.S. borrowers, according to a Trans-Union Report). If you want to pay it off over five years, you’ll pay $6,485.96 in interest. However, combine this loan into a loan with a 7% APR, and you’ll only pay $2,068.79 in interest.
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Debt consolidation replaces multiple loans with one monthly payment. It simplifies budgeting and eliminates the confusion of keeping track of multiple due dates and interest rates, which can lead to missed payments, late fees and excessive penalties.
Simple financial planning
Debt consolidation gives you a clear picture of how much you owe and when it will be paid off. You also have a fixed interest rate, while APRs on multiple balances can fluctuate from month to month. Therefore, you can budget more accurately and ensure that you always have the funds to make the payments.
And since you’re locked into paying a fixed amount each month, there’s no need to just make the minimum payment and extend repayments indefinitely. You are forced to repay your loan by a certain date, after which you can use the funds you were putting toward the loan for other financial goals, such as building a home. An emergency fund– which can help you avoid accumulating more debt.
Better credit score
Making regular, on-time payments on your overall debt helps. Boost your credit score.. A high score can help you get better terms on everything from auto loans to mortgages, saving you money in the future.
How much can you save with debt consolidation? Learn more here!
The bottom line
Managing multiple loans can be overwhelming, and high interest rates can trap you in a vicious cycle that leads to even more financial trouble. Debt consolidation can help reduce your stress, lower your interest rates, and ultimately save you thousands of dollars as you pay off your debt.
That said, debt consolidation is not a complete solution. It’s important to understand your financial situation and create a budget to stay on top of your payments. It’s also important to maintain a discipline with your money after you’ve finished paying off your debt so you don’t end up back where you started. With the right approach, debt consolidation can be the first step to regaining control of your finances and establishing long-term financial stability.