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What is Debt Consolidation?
How Does Debt Consolidation Work?
Debt consolidation is a refinancing strategy that involves adding up all your smaller loans and taking out a personal loan large enough to pay off all your smaller loans. To consolidate means to “put together.”
Popular reasons to use debt consolidation include:
- Refinancing debts to get a lower interest rate.
- Refinancing debts to have more time to repay them.
- Refinancing debts to lower the monthly minimum payment.
Consolidations may also be more convenient because one loan replaces many, and the monthly payment may be scheduled on a date of the month after your paycheck has cleared your bank.
If you are considering debt consolidation, here are the steps to take to prepare:
- Collect the information from all the loans you want to consolidate, which includes the balance due, the minimum monthly payments, and the annual percentage rate (APR) for the interest rate of each loan.
- Add all the balances due to get the total amount you still owe.
- Add all the monthly payments to get the total monthly amount you currently pay.
- Make a list of the APRs for each loan.
Can Debt Consolidation Lower Your Interest Rate?
If your goal is to refinance your current debts to get a lower interest rate, then after you get a quote for a personal loan, compare the rate to the APR of your current loans. You may decide to use debt consolidation for only loans with a higher APR than the quote you get for a personal loan.
For example, suppose you have three debts, which are: a car loan (APR 14%), a credit card (APR 29%), and a loan to pay for furniture (APR 28%). If you can get a personal loan with an APR of 18%, you can consolidate the credit card debt and the furniture loan to potentially lower your interest rate and save money.
Use Loan Consolidation to Get More Time to Pay
If your goal is to refinance your debts in order to have more time to repay, then you may want to try to extend the loan payment terms by paying off loans that are due in a shorter time and paying less per month but paying longer until they are paid off.
Let’s say that you have a few different loans that you must repay within three years. If you consolidate those debt obligations into one installment loan, you may be able to extend your loan terms and pay it off in five years! By extending the loan terms, you will pay back more in the long run, but your monthly payment could be lower.
Can You Access Lower Monthly Minimum Payments Through Loan Consolidation?
Debt consolidation can potentially help you lower your monthly payments into a single payment that fits your budget. If you choose to do this, you may pay more interest because it will take longer to pay off your debts.
There are plenty of good reasons why people need to lower their monthly payments. Perhaps their financial situation changed, and they do not make as much money as they did when they initially took out a loan. Additionally, the rise of inflation has affected many Americans, some of whom are struggling to handle basic necessities like gas, electricity, and groceries. Regardless of your reason for consolidating your debt, it is important to consider the pros and cons of loan consolidation.
Some people want to consolidate loans to get a lower monthly payment that is easier to fit into their budget. In some cases, you may be able to access some extra cash out of your debt consolidation by borrowing more than the total of all the debts that you wish to consolidate.
Debt Consolidation, Debt Management, and Debt Relief
In addition to considering debt consolidation as an option, when you work with a company that provides debt management services, you can learn more about the potential of debt relief. For those who qualify, debt relief may help you reduce the burden of unsecured debts, get lower interest rates, and / or reduce minimum monthly payments without taking out a new loan.
Suppose you are “underwater,” drowning in credit card debt and considering bankruptcy. Most people are too intimidated to negotiate with credit card companies for a better deal.
Examples of things that are possible with debt relief:
- Some of the debt is reduced.
- Interest charges are waived or reduced.
- Late payment penalties are removed.
- Minimum payments are reduced.
Each circumstance is different, and you may not qualify for any such debt relief given as examples, as the results may vary.
The debt management process handles all the monthly payments for you, and you only need to pay the debt management company a single monthly payment that covers everything. If you have unsecured debts you are struggling to pay, you owe it to yourself to explore all the options available to help manage your situation! Click here to learn more.
Being overwhelmed by debt problems may cause you to give up or get stuck. You may feel like a “deer in the headlights” and not know what to do. It is helpful to know that there may be options to consider, so call Max Cash at 833-207-9052 to get started before you get another demanding call from a credit card company or collection agency.5 Whether you choose to apply for a personal loan for debt consolidation or explore the possibility of debt relief, Max Cash has your back!
Are You Eligible for Debt Relief?
Are you in over your head? Stuck in debt that you can’t get out of? Consider applying for debt relief to get back on your feet and consolidate your debt.
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