According to Business Insider, the average American has a debt of $59,580. Juggling between multiple loans, ranging from mortgage to auto, student, and credit card debts, can be overwhelming, making debt consolidation invaluable. It streamlines finances, and you pay off your debt sooner while saving money. Read on to learn five ways debt consolidation saves money.
Lowers Interest Rates
Debt consolidation loans from Symple Lending are an excellent option for borrowers with various high-interest loans. They can shop for banks and alternative lenders offering lower interest rates and achieving greater savings in the long run. Also, people whose credit score has improved from the last time they borrowed can qualify for a competitive interest rate.
For instance, a person with a debt of $9,000 at a 25% combined APR pays $500 monthly and $2,500 in interest over two years. If this person decides to consolidate the debt, they may get 17% APR, a two-year repayment period, and a monthly payment of $445. Cumulatively, the person saves around $820 in interest.
Reduces Monthly Payment
A debt consolidation loan can lower monthly payments in two ways. First, with lower interest rates, your monthly premiums are reduced substantially. Second, you get a new loan term, lowering monthly payments while increasing repayment. For the above example, your monthly payment changes from $500 to $445.
Reduced monthly payment means you have more disposable income to direct to other financial needs such as an emergency fund or investment. Also, you may pay more than the loan’s minimum to offset the debt earlier and save on interest.
Tracking different loans with varying repayment schedules can be daunting and strenuous. One of the biggest benefits of debt consolidation is merging multiple debts into a single loan. As a result, you make one payment, reducing the probability of late or missed payments and associated penalties and fines. Depending on the loan, you can realign the repayment to your pay date. Timely loan repayment improves your credit score, which can be helpful when securing future loans.
Faster Debt Repayment
According to experts at Symple Lending, debt consolidation can help borrowers with significant credit card debt pay off their debt faster. Since the loan has a fixed monthly payment and a predetermined loan term, they can clear it quickly and attain freedom from debt. Once the loan is done, you can devote your money to other financial obligations, such as a retirement fund.
Attain Greater Peace of Mind
Besides the financial benefits of debt consolidation, you get peace of mind, which is priceless. Dealing with a single creditor is easier, more manageable, and time-saving than with multiple creditors, each with their terms, rates, and repayment dates.
Debt consolidation is an intelligent financial decision for persons with huge debts, good credit ratings, and cash flow to cater to the monthly debt service. It saves money through lower interest rates, reduced monthly payments, expediting the loan, and avoiding missed and late payment fines. However, exercise financial discipline and evaluate spending habits before merging your debt to avoid falling deep into debt.