One is to consolidate all their credit card payments onto one new credit card – which can be a good idea if the card charges little or no interest for a period of time – or utilize an existing credit card's balance transfer feature (especially if it's offering a special promotion on the transaction).Home equity loans or home equity lines of credit are another form of consolidation sought by some people, as the interest on this type of loan is deductible for borrowers taxpayers who itemize their deductions.Consumers can use debt consolidation as a tool to deal with student loan debt, credit card debt and other types of debt.
They also tend to have higher interest rates and lower qualifying amounts.
Even so, the interest rates are still typically less than the rates on credit cards. “Typically, the loan has to be paid off in three to five years,” says Harrine Freeman, CEO and owner of H. Freeman Enterprises, a credit repair and credit-counseling service in Bethesda, Md., and author of “How to Get Out of Debt.” These types of loans don’t erase the debt; they simply transfer all your debts to a different lender or type of loan.
Debt consolidation means taking out a new loan to pay off a number of liabilities and consumer debts, generally unsecured ones.
In effect, multiple debts are combined into a single, larger piece of debt, usually with more favorable pay-off terms: a lower interest rate, lower monthly payment or both.
This amounts to a total savings of $7,371.52 ($3,750 for payments and $3,621.52 in interest).
Of course, borrowers must have the income and credit worthiness necessary to allow a new lender to offer them at a lower rate.
There are also several consolidation options available from the federal government for those with student loans.
Theoretically, debt consolidation is any use of one form of financing to pay off other debts.
This works out to ,371.84 being paid in interest.
The monthly savings is 5.21, and over the life of the loan the amount of savings is ,765.04.
“If the principal is paid down faster [than it would have been without the loan], the balance is paid off sooner, which helps to boost your credit score,” says Freeman.