Debt consolidation could save you thousands of dollars. Here’s how.
Debt can put a big strain on your finances (and your mental well-being). It hurts your credit score, impedes your ability to save for your goals and can stretch your budget so thin you’re forced to take on more debt to make ends meet.
If you’re in this situation, a debt consolidation loan could be a lifesaver. Not only can it make it easier to manage your payments, but it can also save you thousands of dollars, both now and in the future. In this article, we’ll examine how debt consolidation can save you money and why it might be the best course of action if you’re struggling to keep up with your debt load.
Find out how much you could save with a debt consolidation loan by getting a free savings estimate here.
How debt consolidation could save you thousands of dollars
Debt consolidation can be worth it for many reasons. Here are some of the big ones.
Lower interest rates
One of debt consolidation’s main benefits is that it can help you get a lower interest rate. Average credit card rates are currently around 20%, and average personal loan rates are around 11%. High rates can make it difficult to pay off your debts and cost you thousands of dollars over the course of repayment.
When you consolidate your debt, you take out a new loan to pay off all your balances. This loan typically comes with a lower interest rate than you were paying before. Currently, you could get a debt consolidation for 7% or lower, depending on your credit score.
How much can this save you? Imagine you have $11,000 in credit card debt (around the current average for American borrowers, according to a TransUnion report). If you wanted to pay that off in five years, you’d pay $6,485.96 in interest. Consolidate that debt into a loan with a 7% APR, however, and you’d only pay $2,068.79 in interest.
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Debt consolidation replaces multiple debts with a single monthly payment. This simplifies budgeting and eliminates the confusion of keeping track of several due dates and interest rates, which can lead to missed payments, late fees and over-limit penalties.
Easier financial planning
Debt consolidation gives you a clearer picture of how much you owe and when it will be paid off. You also have a fixed interest rate, whereas APRs on multiple balances can fluctuate from month to month. So, you can budget more accurately and ensure you always have the funds available to make payments.
And since you’re locked into paying a set amount each month, there’s no more making only the minimum payment and stretching repayment out indefinitely. You’re forced to pay off your debt by a certain date, after which you can use the funds you were putting toward debt for other financial goals, such as building an emergency fund— which can help you avoid accruing more debt.
Improved credit score
Making regular, on-time payments on your consolidated debts helps boost your credit score. A higher score can help you get better terms on everything from auto loans to mortgages, saving you money in the future.
How much can you save with debt consolidation? Learn more here!
The bottom line
Managing multiple debts can be overwhelming, and high interest rates can trap you in a vicious cycle that leads to even more financial trouble. Debt consolidation can help reduce your stress, lower your interest rates and ultimately save you thousands of dollars over the course of repaying your debt.
That said, debt consolidation is not a cure-all solution. It’s essential to understand your financial situation and create a budget to stay on top of your payments. It’s also essential to maintain a disciplined approach to your money once you’ve finished paying off your debt so you don’t wind up right back where you started. With the right approach, debt consolidation can be the first step in regaining control of your finances and establishing long-term financial stability.