The Debt Consolidation Calculator can determine whether it is financially rewarding to consolidate debts by comparing the APR (Annual Percentage Rate) of the combined debts with that of the consolidation loan. APR is the fee-adjusted financial cost of a loan, providing a more accurate basis for loan comparisons. The calculated results will also display comparisons such as the monthly payment, payoff length, and total interest.
Debt consolidation is a form of debt restructuring that combines several loans into one, mainly for two reasons: to lower either the interest rate or to lower the monthly payment amount. With a good consolidation loan, it is possible to lower both. Another possible reason people consolidate loans is simplicity; instead of dealing with multiple different loans, debts, and payments each month, a consolidated loan only requires one, relieving hassle and saving time.
Most loans will require the payment of upfront fees. As a result, the real cost (real APR) of loans is higher than the interest rates advertised by lenders. This calculator can determine the real APR of consolidated loans after adjusting for applicable fees, which is the more accurate and comparable indicator of the financial cost of a loan.
Home equity loans, home equity line of credits, and cash-out refinances are common sources of funds used for debt consolidation. These are secured loans that are tied to collateral, such as real estate properties, generally lower risk for lenders, which lowers interest rates. On the other hand, unsecured loans can also be used to consolidate debts, such as personal loans or balance-transfer credit cards. They tend to have higher interest rates and lower loan limits because there is no collateral attached to them.
Considerations
Before consolidating loans, there are some considerations to keep in mind.
Besides the interest rate, the loan fees or points are major costs of a loan. Because the purpose of debt consolidation is to lower the costs of debts, any additional fees on top are not helpful. This is made evident by the calculator; using the default figures as given, a 5% loan fee makes debt consolidation a financially feasible decision. However, if the loan fee is changed to 15%, the new consolidated loan is no longer worth it due to the heavy fee cost required to consolidate the prior loans, as pointed out by the red text. As a result, it is important to consider the loan fees or points when it comes to debt consolidation.
The process of consolidating debt is not quick but tends to be tedious and drawn out. It involves evaluating a person's financial situation with a credit counselor in order to ponder necessary actions.
Extending the term of a loan may results in more interest payments over a time period, though this may be canceled out by more favorable conditions in the consolidated loan, such as a lower real APR. The calculator can help evaluate this.
Debt consolidation may lower credit scores, depending on the chosen option. Credit scores and credit reports can only ever receive positive marks as long as routine, timely payments are made each month. With that said, any application for new credit is considered a hard inquiry into credit history, which generally lowers credit scores. However, as long as timely monthly payments are made, this dip in credit score tends to be short-term. Credit scores also depend on a person's credit utilization ratio, which is the amount of debt that they carry as compared to the total amount of debt that is available to them. For instance, consolidation using a personal loan to pay off credit cards can make a utilization ratio go down, which is good for credit scores. However, in this same scenario, the credit score can go down if a credit agency believes it to be a risky loan.
Fix the Real Problem First
While effective loan consolidation can possibly lower the financial burden, it is worth considering tackling the root of the burdens first, whatever it may be. For many people, this is a change in habits such as spending less and saving more. For others, it may be a journey towards learning how to live within or below their means. In some cases, it can even be seeking a higher income. These are few examples of methods that will be more effective in the long term in erasing debt, as opposed to just simply consolidating them. In any case, budgets are practical ways to sort financial situations before the question of whether or not to consolidate loans pops up.
It will take 47 months to pay off $50,000 with payments of $1,500 per month, assuming the average credit card APR of around 18%. The time it takes to repay a balance depends on how often you make payments, how big your payments are and what the interest rate charged by the lender is.
Debt consolidation can negatively impact your credit score. Any debt consolidation method you use will have the creditor or lender pulling your credit score, leading to a hard inquiry on your credit report. This inquiry will decrease your credit score by a few points. However, this credit score decline is temporary.
Expect to pay a balance transfer fee of 3% to 5% of the amount consolidated. If you're interested in a debt consolidation loan, use the sliders below to see how changing the interest rate or term affects how much interest you will pay.
The 4 Cs of Credit helps in making the evaluation of credit risk systematic. They provide a framework within which the information could be gathered, segregated and analyzed. It binds the information collected into 4 broad categories namely Character; Capacity; Capital and Conditions.
Options For Paying Off Substantial Credit Card Debt. There are a number of strategies to pay off large amounts of credit card debt. They include personal loans, 0% APR balance transfer cards, debt settlement, bankruptcy, credit counseling and debt management plans. You may be able to use more than one of these options.
The short answer is Yes, people are generally allowed to use their credit cards after debt consolidation as it does not typically involve closing credit card accounts.
Only available to those with decent credit: Debt consolidation is, ironically, only a possibility for those who have a high enough credit score and a low enough DTI. It won't solve underlying financial flaws: You'll need to change your income, spending or both to stay out of debt once you pay it off.
The potential drawbacks of debt consolidation include the temptation to rack up new debt on credit cards that now have a $0 balance and the possibility of hurting your credit score with late payments. Also note that the best personal loans go to consumers with very good or excellent credit, so not everyone can qualify.
Debt consolidation is almost always the better choice. And while it doesn't change how much you owe, you might save by getting a lower interest rate. However, you usually need at least good credit for this tactic to work.
Banks, credit unions, and installment loan lenders may offer debt consolidation loans. These loans convert many of your debts into one loan payment, simplifying how many payments you have to make.
We researched more than a dozen debt relief companies and New Era Debt Solutions was one of our top picks, thanks to its lower fees and high customer satisfaction ratings. If you owe more than $10,000, National Debt Relief is also a strong choice.
Is National Debt Relief legit? National Debt Relief is an accredited member of the American Association for Debt Resolution (AADR). It has been around since 2009 and has helped over 600,000 individuals reduce their debt. It also has an A+ rating from the BBB (Better Business Bureau).
Increase your income: Seek a raise, start a side hustle or sell unused items. Set up automatic payments: Aim for $1,400 a month toward debt. Negotiate interest rates: Contact creditors for lower rates. Consider debt consolidation: If eligible, consolidate your debts for lower overall interest.
To work toward paying off a large balance, though, consider using the debt avalanche or debt snowball approach. With the debt avalanche method, you'll make the minimum monthly payments on all your credit card accounts and apply any additional payments you can afford to the account with the highest interest rate.
If you can afford to pay off your debt during the promotional APR period, a balance transfer card may be your best bet. For example, with $5,000 of debt, a six-month intro APR balance transfer card would allow you to pay off your debt interest-free with $833.33/month payments.
For most debts, the time limit is 6 years since you last wrote to them or made a payment. The time limit is longer for mortgage debts. If your home is repossessed and you still owe money on your mortgage, the time limit is 6 years for the interest on the mortgage and 12 years on the main amount.
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