Debt consolidation is a way of increasing your monthly cash flow by combining all your high interest payments into a low interest and easily manageable home equity loan. The process is explained in the example.
Lets look at this example:
Your credit card loan is $15000 at 18% interest
Your car loan is $18,000 at 10% interest
Your student loan $21,000 at 8% interest
You plan on paying all these off in five years. Assuming interest rates don't change:
You make a monthly payment of principal of $250 and $45 in interest on your credit card loan. You pay $295 a month.
You make a monthly payment of principal of $300 and $30 in interest on your car loan. You pay $330 a month.
You make a monthly payment of principal of $350 and $28 in interest on your student loan. You pay $378 a month.
After five years of repaying these loans you would have paid $54,000 in principal and $32,400 in interest.
YOUR LENDERS HAVE JUST MADE AN ABSOLUTE KILLING OFF YOU!
Now, lets look at how we can save money consolidating your bills using a home equity loan.
Take out a home equity loan for $54,000 you plan to pay off in five years.
Receive the lump sum of money and pay off all your creditors.
After five years have your loan fully paid off only paying $13,500 in interest.
YOU JUST SAVED $18,900!
How does this work so well?
Home equity loans have extremely low interest rates, usually around 5%! If you put all your bills into one home equity loan, you will make regular low interest payments on what you owe.
This may be considered a double edge sword, but because you use your house as the security to finance the loan, if you cannot make the payments you may loose your house to the creditor. However, this is a very good incentive to pay your bills!
Good debt, Bad debt:
It is important to use debt consolidation to reduce bad debt instead of good debt. Good debt is defined debt that is owed on the purchase of an asset. Bad debt is defined as debt that is owed on the purchase of a liability.
Learn how to increase your quality of life on http://www.use-your-equity.com with the power of home equity loans. Article by John Whiteside!