How Debt Consolidation Loans Work and the Benefits
What is Debt Consolidation?
Most Americans today have multiple reoccurring debts that must be paid monthly until they are paid in full. These debts can consist of student loans, personal loans, credit cards, medical bills, and car payments. A debt consolidation loan doesn’t get rid of your debt, it just creates a brand new loan that is the total of all the debt being paid in full.
How Does Debt Consolidation Work?
Let’s say you currently have three credit cards. Each credit card has different balances as well as various annual percentage rates (APR).
Credit Card #1: $3,000 balance at 15% APR
Credit Card #2: $2,500 balance at 23% APR
Credit Card #3: $4,500 balance at 19% APR
Total Balances: $10,000
The high interest rates on these credit cards can make paying off the balances very challenging. Instead, consolidate the three credit cards into a single, lower-rate $10,000 Personal Loan.
With set repayment terms and a lower interest rate, the Personal Loan will help you pay off the total balance quicker and pay less interest versus making minimum payments on the three separate credit cards. It’s a win/win!
If you own your home, a Home Equity Loan is another option to consider when consolidating debt. It will accomplish the same objective as the Personal Loan in the above example; however, because Home Equity Loans are secured loans, the interest rates are typically lower. This will help you save even more money through debt consolidation.
Benefits of Debt Consolidation
There are three main benefits to consolidating debt:
- Reducing the Amount of Interest Paid
- Paying Off Loans & Credit Cards Quicker
- Creating a Single, Manageable Monthly Payment
By combining multiple, high-interest credit cards or loans into a single, lower-rate loan, you’ll instantly reduce the amount of interest you pay each month and make managing your finances much easier.
Lastly, if you consolidate your debt with a Personal Loan or Home Equity Loan, you will have set repayment terms. This will help you pay off the total debt quicker and save even more interest than if you simply made minimum payments on a credit card.
Keep in Mind…
Consolidating debt is not limited to Personal Loans or Home Equity Loans. You can consolidate several high-interest rate credit cards into a new lower-rate credit card.
Without set repayment terms, you will only be required to make the minimum monthly payment. If your goal is to eliminate debt, this option may actually take longer than a personal loan to pay off the debt and cost you more in interest. Secondly, many credit cards have balance transfer fees that will put you even further behind your goal of reducing your debt. At CAMPUS, all of our credit cards offer no balance transfer fees and no annual fee!
If you would like help deciding if debt consolidation is right for you, call us at 800-367-6440 and press 4, chat with us on our website during business hours, visit one of our convenient service centers, or email us at firstname.lastname@example.org.
To apply online, visit: https://www.campuscu.com/get-started/
By Campus USA at 3 Feb 2020, 09:50 AM