With debts piling up every month, you may think that your life is at a halt but there is a solution to make the repayment of your debts more manageable. Having several debts to pay every month can prove to be very difficult, which is why many people opt for debt consolidation.
Consolidating your debts makes it very easy for you to manage your finances. You do not have to worry about individual payments, and this takes a lot of pressure off your shoulders. What’s more, debt consolidation has helped many people pay off humongous amounts of debts and finally freed themselves.
After many successes, people often wonder what is the real cost of debt consolidation?
This is the simplest way to consolidate your loan. In this case, you take out a loan and use the money you get to pay off all your existing loans. This helps you get rid of all your previous loans, and you can start paying the money off in a single monthly installment. This not only simplifies your loan amount but also simplifies the process of payment.
You no longer have to distribute your income in different loan payment accounts. Instead, you can do that with a singular payment. More importantly, a consolidated loan gives you the benefit of paying a small sum of money for your monthly payments.
You can find two types of consolidated loans such as, secured and unsecured. Secured consolidated loan are the amount of money you get from borrowing against an asset. In such kinds of consolidated loans, you might end up losing your asset on non-payment.
This kind of loan is called a homeowner equity line. In simple words, you can consider them to be a second mortgage to your home. They usually have a long term and can go on for 15-30 years. It may seem like an ideal option to many as it has a lower interest rate, but the duration of the loan can inevitably sponge more money.
On the other hand, if you get an unsecured consolidated loan, you won’t have to borrow it against anything. The loan stands alone, and none of your assets are accounted for. These loans are much shorter in comparison to the secured consolidated loans.
Getting a consolidated loan is a great option for the long run. It helps you build your credit score as you are consistently making monthly payments showing the banks that you are active.
What Does A Debt Consolidation Loan Cost?
Loans are designed to keep your exclusive case in mind. The experts will review your details and come up with a loan that fits your needs the best.
Here are some things you must consider when it comes to the cost:
- The amount of the loan you receive depends on the complete value of all your debts.
- Typically, you get 4 years to pay off the loan, but there can be changes depending on your case.
- The annual percentage rate is charged as an additional charge, such as the annual fees or the arrangement fees.
If you have debts from credit cards, then one solution for such a case is to consolidate your balances to a new credit card. The new credit card should offer you a low-interest rate so you can easily pay it off. A low-interest rate on your card means a lower installment per month.
Many people have credit cards with extremely high-interest rates, and that can be quite problematic in the long run. Many of these credit cards offer interest rates between 15% to 19%, which can amount to a lot of money.
To make your repayments easier and cheaper, you can seek out a credit card that offers a low-interest rate of 12%. There are also options with 0% interest. These credit cards are a great option if you can pay off the money within a year.
Use this to your advantage and pay off as much money as you can in the first year so that the interest rate is applicable only on the leftover amount.
What Does A Consolidation Through A Bank Transfer Cost?
Typically you will be able to save a lot of money if you use a balance transfer credit card and transfer the balance to your new credit card. The cost of everything depends on the kind of card you get. If you get a 0% interest rate card, then you might not have to pay a single penny.
The only thing you will have to pay is the transfer charges. These charges can amount to around $250-$300. The biggest thing to keep in mind is to pay as much as you possibly can before the promotional period ends.
If you have no idea how debt consolidation works and it all sounds too confusing to you, head over to a credit counselor. A credit counselor will come up with a debt management plan. According to the plan, a counselor will reach out to your lenders and try to bring down your interest rates. They will do all the planning and communication on your behalf.
All you have to do is be consistent with your payments. Contact a credit-counseling agency and you can pay the money to them for them to further distribute to all your lenders. It is possible that the lenders will close all your credit cards and you might have to stop using them for the duration of your debt management plan. It can take a total of five years to complete your debt management plan, which may not be favorable to many people as they won’t be able to live without credit.
What does it Cost to Get Credit Counseling?
This option is arguably the cheapest one. You may have to pay a basic fee, and a monthly management fee that does not go higher than $30 per month.
You can find non-profit debt counseling companies that can help with the consolidation of your debts and steer you in the right direction.
Take your situation into consideration and decide which way will work the best for your debts. All three of the mentioned ways can help you consolidate your debts and then pay them off in a better way.