Q. I’ve heard alot of about consolidating loans but don’t understand it fully, can you give me just a brief explanation?
A. Great question, everyone on the Internet (scammers, some legit, banks, credit cards, everyone) wants you to consolidate your loans with them? So what’s the deal.
Consolidation is essentially combining all your debt into one place and continuing monthly payments. People think that putting it all in one place will reduce their payments, this is not true. If you have all your debts in different places (car, bank, credit card) and they all offer the same interest rates (i.e. 5%) then you payments won’t change. What WILL change is if you work a deal with the bank, that you will begin paying them more money (For interest payments) if you put all your debt with them. In turn you can pay off your debts with higher interest. (i.e. move 20% credit card debt to bank with 5% interest rates).
Does this save you money, yes! IT’s a great way to reduce interest payments. If you have alot of debt, what should you do with money saved from Consolidation? Stay tuned in another post to get some more ideas!
The point of consolidation is to take that extra cash you save per month, invest it, accumulate interest payments on it, and pay off your total debts sooner.