When you're on a tight budget and trying to pay off debt, every dollar counts. Maybe you've been paying your bills diligently, but it seems like it`s taking a long time to reduce the balances.
If this sounds like you, a debt consolidation loan may be worth considering when working toward paying down debt and taking control of your finances.
Debt consolidation is combining existing debts into a single loan and one payment. For example: refinancing home loan, and using the existing equity to pay off a vehicle, credit card or medical debt.
Consolidating revolving credit cards to a fixed term loan can significantly lower monthly payments, reduce the amount of interest paid, or even both. You may be paying a very high interest rate on the balance, making it much more difficult to pay off the debt. If you pay off a credit card, ask yourself, do you have the budget and financial discipline not to go into debt with the card all over again? If not, it can become a cycle keeping you from your goals.
With debt consolidation the big question is always will it save me money on monthly payments or in overall interest? The answer is not always, in fact, refinancing may cost more (i.e. rolling a 5 year car loan into a 30 year mortgage). Ask your financial institution for help calculating or, try a debt consolidation calculator
When it comes to using collateral for the loan, rolling unsecured debt into secured debt such as a mortgage refinance, home equity or a car loan will likely give you a far lower rate however, using this collateral means you could lose it if you default on the loan.
While you may be lowering your monthly payment, you may also be spreading out your debt over a much longer period of time, particularly with a home equity line of credit (HELOC) or mortgage loan.
Mountain America Credit Union's free Value Analyzer tool can help you see if you might be able to consolidate debt or refinance your loans at a lower rate.
A free value analysis takes just a few minutes, but it could save you hundreds or even thousands of dollars in interest and reduce the total number of payments.
Visit them online at macu.comand schedule an appointment today.