FAQs About Debt Consolidation
What exactly is debt consolidation?
- Loosely defined, debt consolidation involves combining two or more debts into one monthly payment. The benefits are usually immediate. You’ll only have one payment to make and you can enjoy lower-interest rates (which means no more 18-24% credit card debt). This will not only lower your monthly payments, but speed up your loan payoff as well.
When is the best time to consolidate my debt?
- The sooner the better. The more time that goes by with your current high-interest loan, the longer it’s going to take to pay off the principal. The longer this takes, the higher the overall costs.
What are some other benefits of consolidating debt?
- Consolidating your high-interest debts can dramatically speed up getting out of debt. You’ll lower your interest rate, and ensure that more of your payment goes toward the principal. This can help boost your overall credit score.
By how much can I reduce my monthly payments?
- Let’s say you’re carrying a balance of $2,000 spread across several credit cards. That’s around $360 a year that you’re paying on interest alone. This money won’t reduce what you owe; it’s simply cash out the window. With the right debt consolidation loan, you can lower this amount by $200 and save big.
What is the difference between secured and unsecured debts?
- Secured debts are those borrowed with collateral that ensures you’ll fulfill your credit obligations (i.e. mortgage and car payments.) Unsecured debts are everything else: credit cards, medical, legal and utility bills. These are typically less in their total amount, and incur much higher interest rates over secured debts. An unsecure debt is one that you’d like to consolidate.
Will a debt consolidation loan erase my bad credit debts?
- No one can borrow his or her way out of debt. However, the right debt consolidation loan can greatly help speed up the process. Don’t wait until you’re in a tight fix. If you’re running several high-interest balances each month, pay them all off right away and consolidate them into one easy, low-interest payment.