You can use a debt consolidation loan to pay off your high-interest credit cards and other debts, which will reduce your interest payments and monthly bills. Debt consolidation loans allow you to combine multiple debts into one payment at a lower rate than what you currently pay on each account.
The best part is that this type of loan can also be used as an emergency fund if something unexpected happens. So if you have some extra money saved but don’t know what else it could be used for, consider using it to pay down some of your debts instead!
Lower your interest rate
Interest rates are a percentage applied to the amount you borrow when taking out a loan. It’s calculated by adding up all the monthly payments you will make on your debt and dividing them by the total amount of your loan. For example, if you take out a $20,000 loan with an interest rate of 5%, your monthly payment would be $500 ($20,000/360). That means 15% of every fee goes toward paying down this principal balance; 85% goes toward servicing interest costs.
However, since banks base their rates on market conditions and factors such as credit scores and income levels, this calculation may vary slightly from lender to lender. This can confuse some borrowers who aren’t sure what their exact monthly payment will be or whether they qualify for certain loans, but luckily this is the way around these obstacles!
Lower your monthly payments
A consolidation loan might be the answer if you want to reduce your monthly payments. It’s one of the most popular benefits of debt consolidation loans. Consolidating your debt into one monthly instalment can lower both the interest rate on your loan and your overall payment amount. This means that when it comes time to pay back what you owe, you won’t be spending as much money each month!
Let’s look at an example to understand how this works in practice. Let’s say that before consolidating with a consolidation loan program, you were paying off three different credit cards:
- a $100 balance with an 18% APR (annual percentage rate)
- a $500 balance with a 20% APR
- and another $1,000 balance at 22%.
That adds up to more than $4200 in total credit card debt for just those three cards! Now let’s say that after consolidating these balances into one new loan program, their average interest rate is about 11%. That means instead of paying down over $11 000 worth of loans individually over the years, you’re now repaying only about $5 800 price over seven years.
Because they are lowering their monthly payments by bringing them together into one more considerable sum due every 30 days instead of making twelve separate payments each month, they will save even more money overall on interest charges paid during the repayment period, which could add up quickly if not properly managed.
Combine multiple debts into one payment
You can combine multiple debts into one payment and simplify your financial life by making a single payment each month. That way, you won’t have to worry about forgetting to pay off any of your bills or having different interest rates on each debt.
Conclusion
Debt consolidation loans are a great way to get out of debt and back on track. They can help you reduce your monthly payments, lower your interest rate and even combine multiple loans into one. If you’re struggling with high-interest rates or paying off various debts, consider applying for a loan today!
