Debt Consolidation
Are you thinking about a debt consolidation?
Here are some reasons why this might be a good financial decision:
1. Lower Interest Rates
Home loans generally have lower interest rates compared to credit cards and personal loans, which can reduce the overall interest you pay on your debts.
2. Simplified Payments
Consolidating multiple debts into a single home loan payment can make managing and keeping track of your financial obligations easier.
3. Improved Cash Flow
Extending the repayment period through your home loan may lower monthly payments, improve your cash flow, and make it easier to handle your finances.
4. Improved Credit Score
Closing debts can improve your credit score by reducing your credit utilization ratio and showing a consistent payment history.
5. Avoiding Penalties
Consolidating debts into a home loan can help avoid late fees and penalties associated with other debts if you struggle to keep up with multiple payments.
Consolidation using a Personal Loan
You don't need a home loan to do a consolidation. Let's look at Consolidating 2 Credit Cards into a Personal loan.
Credit cards certainly come in handy, however, if you are finding it difficult to pay them off, you might want to consider a debt consolidation with a personal loan.
Check out this hypothetical debt consolidation scenario……
This Client has 2 credit cards both at 26% interest.
On one card he owes $10,000 on the other card, he owes $7,000
His Total Monthly repayments for both Credit Cards are $501 per month
In reality, there is a strong possibility that additional purchases would be made along the way, pushing up his monthly repayments and extending the time it takes to pay these cards off.
If he takes out a personal loan with us for $17,000. He could pay out both of his credit cards over a 5-year term. Depending on his particular circumstances and the rate applied, his repayments could be reduced drastically.
For example, if our clients had clear credit and were given a rate of 8.5% and no monthly fees, his new repayments would be $348 per month. This is $153 per month in savings.
If our client then puts this $153 per month he is now saving towards his loan repayments, he will pay off all his debt 1 yr and 9 months quicker.
Not only that, but you can’t keep pulling money out of a personal loan the way you can on a credit card. You are forced to pay it off in the allotted time no matter what. It takes away the temptation and ensures your debts are paid down, not to mention the extra cash in your pocket every month!
Another bonus is that your credit score will improve. Credit card debt is considered negative, whereas personal loan debt is considered positive. If you close your credit cards, you are essentially closing off the negative components on the credit score and your score should increase.