Should I Get a Debt Consolidation Loan VA?
Anyone who has tried to get out of debt knows how overwhelming it can seem. You can make payment after payment on high-interest debt and achieve so little progress on paying down the principal that you feel like you’re stuck.
If you have multiple debts, keeping track of all the individual creditors and bills can be a challenge. Figuring out which debt to pay extra on first can be confusing. Some experts recommend paying extra on the debt with the highest interest rate first. Others say you should pay extra on the debt that has the lowest principal total. Which approach is right for you? Sometimes it can be hard to tell.
If you’re feeling overwhelmed with your debt, consolidating your bills can help you get control of your finances. Many people choose a lower interest debt consolidation loan VA to assist them in paying down their debt and achieving financial freedom.
What Is a Debt Consolidation Loan?
A debt consolidation loan is a financial tool to streamline your payments and lower the total interest rate on your debt. Borrowers take out a loan sufficient to pay off all their outstanding debts and use the money to repay their creditors. This leaves the borrower with only one loan to repay, usually with an interest rate that is lower than the average rate paid on the debt before consolidation.
When Should I Get a Debt Consolidation Loan?
Debt consolidation loans are not for everyone, but they can be powerful financial tools to help you make real progress financially and save money when they are used wisely. You might want to consider a debt consolidation loan if:
You’re Having Trouble Keeping Up with All Your Creditors
Debtors with many individual debts can get behind on their debt simply because they cannot remember to pay every creditor.
The average American, for example, has three to four credit cards open at any given time. When you add to that an auto loan, medical payments, a personal loan and so on, you might find yourself paying ten or more different creditors each month making it easy for a bill to get lost in the shuffle. When that happens, your credit can be hurt, and you might rack up extra charges. If you choose to use a debt consolidation loan VA, you’ll have only one creditor to pay, making it much easier to keep up with one creditor than with many creditors.
You’re Having Trouble Making Ends Meet
Borrowers who have to pay several different creditors each month can soon run into problems against their personal budget. As the number of creditors you are paying increases, your disposable income decreases, and you may have no breathing room left in your budget. Because consolidating your debt usually leaves you with one payment that is lower than the total payments required on your debt before consolidation, you will likely free up money when you get a consolidation loan.
If you are looking into a consolidation loan for this reason, however, be careful. It will be easy for you to take on more debt after consolidation and start paying that extra disposable income to other creditors. Earmark that extra money for specific things—even to pay a little bit extra on your consolidation loan each month—so that it does not go out the window in the form of more debt payments. A debt consolidation loan will not do much for you long term if you do not change your borrowing and spending habits.
Your Interest Rate Is Excessively High
Credit card interest rates can be 25 percent or higher annually even for those who have good credit. With such a high interest rate, paying only the minimum payment will keep you in debt for a long time, and you will end up paying a ton in interest. For example, if you pay only the minimum payment required on a $10,000 credit card debt with a 25 percent interest rate, it will take you just over 17 years to pay off the card. And over the life of the debt, in addition to the $10,000 in principal, you will pay an additional $33,539 in interest.
Just imagine how much you will pay in interest if you have several debts. If you can lower your interest rate with a debt consolidation loan VA, you’ll save a lot of money.
For a simple example, let’s say you owe $10,000 on one credit card at 25 percent interest, $10,000 on another credit card at 20 percent interest and $10,000 on a five-year auto loan at 10 percent interest.
You are paying an average interest rate of 18.33 percent, and your minimum payment is $1,012 a month for five years, $800 a month for about nine years, and $400 a month for three years. You will pay $56,727 total in interest if you pay just the minimum payments, and it will take about 17 years to pay off all the debt.
If you consolidate your debt with a $30,000 loan at 7 percent for five years, your monthly payment will be $594, and you will pay $5,642 total in interest. That’s quite a savings both in terms of interest total and your monthly payment! (Remember, in the first scenario, you are paying $800 or more a month for some 14 years.)
Rates on debt consolidation loans vary according to your credit history, but lowering your average interest rate translates into tremendous savings. If you qualify for a debt consolidation loan, it can definitely be the key to achieving financial freedom and becoming debt-free.
For more information for your personal situation, contact Christian Debt Counselors today or apply online for debt consolidation loan here.