If you feel as though you are drowning in debt, there is a way to save money while paying back those loans. You can even save money in high-interest credit cards. A debt consolidation loan can help you reduce your monthly payments and save money in interest rates. Because of how loan consolidation works, it is also easier to pay off your loans when you consolidate them through a consolidation loan.
What is a debt consolidation loan?
A debt consolidation works by simply taking out a larger loan to pay off several smaller loans. It may seem counter-intuitive that taking out a large loan can save you money, but when you understand how it works, you will see that it can help you to pay off your smaller debts, especially credit card debt, with a debt consolidation loan and save you money in the long run.
Reducing monthly payments
If you want more money in your pocket each month, a debt consolidation loan can help you get there. Often, making all of those small payments adds up. When you have a few minimum payments ranging from $40 to $75, you can really start to feel the dent in your pocket book. This is where a debt consolidation loan comes in. When you use the larger loan, you often end up with only one payment, and that payment is usually lower than the sum of all your smaller debt payments. This means a little more breathing room each month, and less stress as you try to remember to make several payments a month. A debt consolidation loan reduces not only the amount of money that you pay, but also the amount of payments that you make.
Saving on interest rates
The biggest savings with a debt consolidation loan, however, come from money saved in interest rates. Credit card interest rates are obscene, and paying off the credit card can take a long time, with a good chunk of your monthly payment going directly to interest. Credit card interest rates can be as high as 29.75% and even higher costing you a bundle. Chances are that your debt consolidation loan will have a much lower interest rate. You can roll your high interest debts into a consolidation loan that is usually somewhere between 10.9% and 15.9%. This can save you a great deal of money in the long run as you pay back your debts.
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