When To Consider Debt Consolidation And How To Do It
Going into debt is always a tough position in which to put yourself. If you are already there, then getting out of debt should be your number one priority. Credit card debt can be especially troublesome because of the extremely high-interest rates on credit cards. Therefore, if you are carrying balances on several credit cards then the first thing you need to do is cut them up. Let me say that again because it is very important. If you owe money on credit cards then you need to cut up the cards so you will never use them again. You need to stop using them. Cut Them Up!
If you have multiple balances then debt consolidation is something that you should strongly consider. However, it is very important to note that when you consolidate these loans you need to pay them off as soon as you can. In addition, you may wish to check out my article on debt relief. Keep in mind that debt consolidation isn’t simply a method of buying more time. No, it is a way to help you pay off the loans sooner and with less money. Let me explain.
If you have balances on three credit cards that all have 20% interest rates then you are paying 60% per month in interest alone! Therefore, if you can get a bank loan at a lower interest rate and immediately pay off your credit cards, then you should do it. This act of debt consolidation will end up saving you a lot of money. Notice I said immediately pay off your credit cards. That means that when you receive the bank loan, you take that money and PAY OFF your entire credit card balance on every credit card. Once you pay the credit cards off you need to cancel the accounts. Then, you work hard to repay the bank loan.
In other words, when you receive the bank loan at a 7% interest rate you take that entire loan and pay off your credit cards and cancel them. Now you will no longer be paying 60% interest on your three credit cards. Therefore, you are saving 53% in interest each month. This is simplified math and there is a lot more that goes into it but the bottom line is that you will be saving money. This doesn’t mean that you can take your time paying back the loan. See, the banks count on that and that is why they have term limits. Maybe it is 7% for the first year and 20% after that. Therefore, pay it back as soon as possible.
It is very important that when receiving the bank loan you apply for an amount that is equal to or slightly over your credit card debt. Don’t put yourself deeper in debt. If you have 4700 in credit card debt then get a loan for 5000. Pay off the credit cards and then give that extra 300 back to the bank along with your first loan payment. It’s not your money, so give it back. You need to pay that loan off as fast as possible. The quicker you get out of debt the quicker you will start keeping your hard earned money.
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