Everyone’s financial situation is unique, but in many cases, debt consolidation can lower your monthly expenses. Debt consolidation is taking out a new loan which is used for paying off multiple, pre-existing debts. These bills are then replaced with a single payment. In many cases, this can result in a single, lower monthly payment that is easier to manage.
Here’s How Debt Consolidation Could Help You Save Money
Let’s say you have a few maxed-out credit cards and a student loan that is putting a strain on your monthly cash flow. Throw in an unexpected medical bill, and you could have a problem on your hands. In this hypothetical scenario, your combined total debt comes to $18,000. These bills have different due dates, interest rates and minimum payment amounts. It’s a lot to keep track of, and if you fall behind on payments, it will only make the problem worse, as late fees and additional interest accrues.
You can consolidate your debts by taking out an $18,000 personal loan and paying off all those other monthly expenses at once. Now you only have a single loan payment to remember.
Also, you may be able to qualify for a lower interest rate on your new loan or extend the term of your loan (from 48 to 60 months, for example), which would result in a lower monthly payment. While the new loan may increase both the total number of monthly payments and the total amount paid over the term of the loan, this is still a viable option for those who are trying to lower their monthly expenses.
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One important thing to keep in mind: If you decide to consolidate your old debts, you must remain committed to making your new payment each month and not use your newly available credit, such as previously maxed out credit cards. Debt consolidation will not help you save money if you start accumulating new additional debt.
Other Ways to Lower Your Monthly Expenses
Before pursuing consolidation, it’s also a good idea to develop a monthly budget and cut costs wherever you can. Look for any unnecessary spending, memberships you’re not using and other “leaks” in your finances. Eliminate and plug those leaks! This will help free up extra cash you can use toward paying off debt faster. You may also want to consider refinancing individual debts to reduce the burden on your cash flow.
Deciding If Debt Consolidation Is Right For You
Debt consolidation isn’t the only solution. But for some people, it can be the help they need to get their finances on track. Do your research and take an honest assessment of your situation. Once you have a full understanding, you’ll be able to make the next steps that work best for you.