- 1 What Is Debt Consolidation?
- 2 How Does Debt Consolidation Work?
- 2.1 1. Summing Up Your Debt
- 2.2 2. Doing the Math to Calculate the Average Interest
- 2.3 3. Determining an Affordable Monthly Payment Rate
- 2.4 4. Weighing Your Debt Consolidation Options
- 3 The Debt Consolidation Calculator
- 4 Situations When Debt Consolidation Isn’t Worth It
- 5 Is Consolidating Your Debt a Smart Move?
- 6 Wrapping Up
Sabres Capital understands that life happens, and sometimes, debt is inevitable. You can avoid high daily compounding interest and save money for your future and family with a Sabres Capital debt consolidation loan for your unsecured debt.
Based on Sabres Capital customer reviews, with this one easy step, you can take control of your finances and save thousands over the course of your loan. That’s money that goes into your pockets – not to your lenders or credit card companies.
If you are juggling multiple loans and interest rates, debt consolidation can help you reorganize your debts into a single payment. Read on to learn more about debt consolidation and how it works.
What Is Debt Consolidation?
In simple words, debt is money or payments that you owe someone. Thus, paying off more than one loan or debt at a time can get complicated and challenging. This is where debt consolidation comes in; it helps you bring all your existing debts under one payment.
In other words, debt consolidation can be defined as rolling multiple high-interest loans or debts into a single payment, usually with a low-interest rate. Debt consolidation makes it possible for you to reorganize and reduce your total debt to pay it off faster. So if you are looking for a way to control your financial situation, try consolidating your debt to reduce the overall interest rate and make payments more manageable.
How Does Debt Consolidation Work?
As stated earlier, debt consolidation is the process of consolidating multiple loans into a new single liability that is to be paid off. The new debt lowers the monthly payment and reduces the interest rates to a more affordable amount. Listed below are the steps that you need to take if you plan to consolidate your debt:
1. Summing Up Your Debt
The first step is to list down all the loans or payments that you owe. This will help you in determining the total amount of money that you have borrowed.
2. Doing the Math to Calculate the Average Interest
From every credit card you own to every loan you are trapped under, you will most definitely have a varying balance (interest rate). Therefore, find an online calculator to compute your average loan and credit card interest rate. The new-average interest rate will give your lender a specific number to beat.
3. Determining an Affordable Monthly Payment Rate
Now it’s time to study your monthly budget. This needs to be done to know exactly how much you are spending on your basic necessities such as food, transportation, utilities, and housing. Moreover, after paying all the bills, is there any money left that can be used to pay off debts? This step is necessary because your debt consolidation payment should fit your monthly budget.
4. Weighing Your Debt Consolidation Options
Although every debt consolidation method is designed for a unique situation, when it comes to deciding on a debt consolidation plan for you, check your requirements, eligibility, and research to find the option that suits you best. However, each consolidation has its cost- interest, monthly fee, or taxes. Some methods of debt consolidation are as follows:
· Fixed-Rate Debt Consolidation Loan
Get a new loan and use the money to pay off the debts. Once the debts are cleared, you can easily pay back the loan in installments.
· Balance Transfer Credit Card with 0% Interest
You can transfer all of your balance into a single credit card and use it to pay the total balance during the promotional period. However, you need a high credit score to qualify.
· Home Equity Loan
If you are a homeowner, you can take out a debt consolidating loan on the equity of your property. It’s a fixed interest rate loan of the lump-sum amount of money that you owe.
In the end, the best option for your debt situation depends on three things- your income-to-debt ratio, profile, and credit card score. Therefore, always weigh all your options before deciding which approach to take.
The Debt Consolidation Calculator
Say, for example, you have two credit cards, both with debts of $2000 and $4000 each, and a student loan with a debt of $5000. All three of these debts will have a different due date, repayment amount, and interest rate, making it extremely challenging to keep up with all.
Therefore, to simplify your situation, you should try consolidating your debt. Bear in mind though that it won’t reduce your loan’s total amount, but will make it manageable and payable. If you are still confused about whether to opt for debt consolidation, use online calculators to find out the consolidated amount of your debt.
The calculator will ask you for information such as loans, interest rates, and your monthly payment. All you have to do is enter the required amount of more than two loans on the calculator and let the algorithm do the rest.
Situations When Debt Consolidation Isn’t Worth It
Debt consolidation will only help you pay off your loans or interest in a more organized and affordable way. Consolidating your debt has nothing to do with controlling your habit of excessive spending. It will be useless if you are already overwhelmed by debts and are not interested in paying off the loans, even with a lower interest rate.
Debt consolidation isn’t worth it if the amount of your debt is small. For example, consolidating your finances will only save a negligible amount for a loan that you can quickly pay off in six to seven months. Also, if the total amount of your debt is more significant than half of your monthly income, there’s a high chance that debt consolidation might add to your problems.
Is Consolidating Your Debt a Smart Move?
Debt consolidation works best in situations when you have more than one credit card debt to pay. For instance, you have three credit cards with ranging interest rates from 17.99% to 25.99%. In order to ensure that your credit is good, you always have to make the payments on time. In such a case, getting a debt consolidation loan can significantly lower your overall interest rate to 6.99%. The requirements of a successful debt consolidation strategy are as follows:
- Your credit card should be good enough to qualify for a low-interest or zero percent interest debt consolidation loan.
- The monthly debt payments shouldn’t exceed 50% of your monthly gross income (including utility bills, mortgage, or rent).
- Your cash flow should cover the payments of your debts.
- Opt for a debt consolidation plan that you can pay off within five years.
If you wish to be more organized when it comes to your finances and step away from the dependency on credit cards, debt consolidation is the solution. It will simplify your monthly payments and increase your credit score simultaneously. Do consult with a financial advisor if you need to, and make a decision that will suit you best.