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Benefits of debt consolidation
Are you feeling overwhelmed by multiple debts and high interest rates? It’s time to explore the benefits of loan consolidation, and our debt consolidation calculator is here to guide you. Debt consolidation can simplify your financial life in the following ways:
Simplified repayments: By consolidating multiple debts into one, you have a single monthly payment to make. Consolidation streamlines your financial responsibilities and reduces the chance of missed or late payments.
Lower interest rates: Typically, debt consolidation loans offer lower interest rates than the average rates of consolidated debts. As a result, you achieve substantial interest savings over the repayment period.
Improved cash flow: Lower interest rates and a single monthly payment can free up more money in the budget, allowing for better cash flow management and potentially enabling additional savings or financial goals.
Potential credit score improvement: If managed responsibly with on time payments, debt consolidation can positively impact your credit score by reducing the risk of missed or late payments, improving credit utilization ratios, and demonstrating a proactive approach to managing debt.
Avoidance of collection agencies: Debt consolidation can prevent debt accounts from going into collections. It allows you to proactively manage your debts and avoid potential legal actions or credit damage associated with unpaid debts.
How to use the debt consolidation calculator
The debt consolidation calculator considers your debts, including credit card balances and installment loans, providing insights into how a consolidation loan can streamline repayments and improve the debt payoff process. To use the calculator, you have to provide your existing debt details. Let's delve into each term and its significance in debt consolidation.
Key terms and definitions:
Credit cards
- Credit card balance(s): This refers to the total outstanding balances on all your credit cards. It’s essential to list all individual balances to calculate the total debt being consolidated accurately.
- Weighted average interest rate: The weighted average interest rate is the average interest rate across all your credit cards, considering the balance on each card. This rate gives an overall view of the interest you’re paying on your credit card debt.
- Monthly payment: This is the total amount you currently pay monthly for all your credit card debts. It’s important to know this to understand the existing monthly commitment toward credit card debt.
Installment loans
- Loan balance(s): This is the total outstanding balance of all installment loans you have, such as personal loans or car loans.
- Weighted average interest rate: Like with credit cards, this is the average interest rate across all your installment loans, considering the balance on each loan.
- Monthly payment: This refers to the total amount you pay monthly towards all your installment loans combined.
Consolidation loans
- Loan term (months): This is the duration, in months, over which you intend to repay the consolidation loan. It’s crucial to calculate the monthly payments and total interest paid.
- Interest rate: This is the interest rate at which you’ll consolidate your debts into a single loan. The goal is to secure a lower interest rate than what you’re currently paying on your credit cards and installment loans.
After entering your loan details, the consolidation loan calculator will detail your monthly payments and the months to debt payoff. It will highlight:
Total existing debt: This is the sum of the credit card balance and installment loan balance before consolidation. In other words, it’s your current debt before consolidation.
Consolidation loan balance: The second result shows the total amount of the new consolidation loan after combining credit card and installment loan balances.
For each of the above scenarios, the debt consolidation loan calculator will detail the following terms:
Monthly payment: The fixed payment amount made each month under your current loans and then under the new consolidated loan. Typically, you should have a lower monthly payment on consolidation due to a lower interest rate.
Review and analyze: Analyze the results to determine the effectiveness of debt consolidation in terms of monthly payments and payoff timeline. Evaluate if the consolidation loan provides a favorable repayment plan compared to the total existing debt scenario.