Why Consolidate Credit Card Debt?

Know the Interest Rates

It's surprising, but most people do not know the interest rates they are paying on their loans.

Home loans may be from 3% to 8%, depending on when the loan originated and what your credit rating was at the time.

But, consumer credit loans (like credit card debt) often has interest rates of 12% to 20%.

Interest Rates Make a BIG Difference

A home improvement loan of $120,000 at 5% costs $500 a month in interest.

So, how does this compare with the credit card balance?

Having unpaid credit card balances of $30,000 at 18% interest costs $450 a month in interest.

A $30,000 consumer loan costs nearly as much as a $120,000 mortgage in interest payments. It's not tax deductible. And, consumer loans are for items that won't last nearly as long as a home.

Consolidate Credit Card Debt to Save Money

A loan to consolidate debt really combines several debts into a single, consolidated, debt.

With a $120,000 mortgage and a $30,000 credit card balance, the total interest is $950 a month.

While we cannot eliminate the amount you own, we can change the interest rate for the debt that was a credit card debt.

Suppose you can qualify for a $150,000 mortgage at 5%. The first $120,000 of this new mortgage pays off the existing mortgage. The additional $30,000 pays off the credit card debt.

Benefits When you Consolidate your Credit Card Debt

The total debt is still $150,000. But, instead of owing a $120,000 mortgage and a $30,000 credit card debt, you now own only a single $150,000 mortgage. But, the entire amount is now at a 5% interest rate.

This means the total monthly interest payment is now only $625. And, this is all tax deductible.

You were paying $500 a month on your old mortgage and $450 a month on the credit card debt. That's $950 per month all together.

Now, with the consolidation loan, the total interest is only $625. That's a savings of $325 a month!

You can, and should, use some of that extra $325 to make additional principle payments on the mortgage. This will help reduce the overall dept quickly.

Now that you see the advantage of a consolidation loan, isn't it time you found out how easy it is?