Freedom debt consolidation reviews1/15/2024 ![]() ![]() Sometimes, these can be very small, though not always. Store or credit cards don’t have such penalties.ĭon’t automatically think you can’t consolidate an account because it has a prepayment penalty. And you should check your loan agreements for any debts you plan to consolidate. Nowadays, few loans come with prepayment penalties. And you should read Should I Consolidate Student Loan Debt? before tackling that. But consolidating that is a whole different topic. And it won’t be worth it unless your debt consolidation loan has a yet lower rate. But these typically have low interest rates already. You might zero the balance on your home equity line of credit (HELOC) or pay off your car loan. In theory, you could consolidate some secured debts. Credit card consolidation is widespread, partly because these tend to carry high rates. So unsecured debts include credit card balances, store card balances, personal loans, borrowing from family and friends, and so on. And an unsecured debt doesn’t have an asset attached (as collateral) that the lender can repossess if you fail to keep up payments. You can consolidate all sorts of unsecured debt. One solution is to take a loan with a payment you can make easily but then pay it down as fast as you can. But you don’t want it to be so short that you’ll struggle to make your monthly payments. You want it to be short enough to pay off within a reasonable period. So, you want to optimize the term of your new loan to suit your needs. But it will cost you $4,671 in interest by the time you pay it off. If you refinance it to a 15-year home equity loan at 10% interest, your payment drops to $53 a month. However, too long a term could cost you more, even if the rate is lower.įor instance, if you owe $5,000 on a credit card with a 17% interest rate, and your minimum payment is $100 per month, it will take 79 months to clear that debt and cost you $2,896 in interest. Getting a loan with a lower interest rate and a longer term can reduce your interest rate and lower your payment. In that case, you can reduce your monthly expense, drop your interest rate, and combine several payments into one. You pay them off with a 7% home equity loan. ![]() Suppose the interest rates on your credit cards range from 17% to 27%. The best consolidation loans may achieve all three goals. Most people consolidate debt to achieve one or more of these benefits: If you owe $2,000 on one credit card and $3,000 on a line of credit and then consolidate them with a $5,000 debt consolidation loan, you still owe $5,000. It merely rearranges them into a more convenient form. The Consumer Financial Protection Bureau (CFPB) defines debt consolidation as a “type of loan that collects many of your debts into one loan with one loan payment.”īut the CFPB goes on to stress that debt consolidation doesn’t eliminate or reduce any of your debts. This guide to successful debt consolidation can help you avoid the pitfalls and enjoy the rewards. However, debt consolidation done wrong can leave you in a much worse financial position. It can save you money if you approach it correctly. Debt consolidation may help you pay your debt off faster, simplify your finances and improve your credit score. ![]()
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