Otherwise, you may have to file for bankruptcy or face the prospect of repossession or foreclosure. How can consolidating your current debt balances help you better manage your finances?
Make One Payment Each Month
One of the best reasons to consolidate your debt is that it makes it easier to keep track of. Instead of trying to remember if you made one of six or seven payments due in a given week, you simply write one check on the first of the month or whenever the payment is due. Getting rid of late or missed payments helps you maintain a good credit score while building a positive credit history.
Lower Your Interest Rate
Your debt payments have two components to them. The first component is the amount of each payment that goes toward your principal balance. The second component is the interest that is paid to the lender for the right to borrow the money. Consolidating your debt generally allows you to lower your interest rate, which can significantly lower your monthly payment.
Use Your Home to Consolidate Debt
If you have sufficient equity in your house, it may be possible to consolidate your debt by cashing out that equity. This may allow you to pay off credit card or other debts at an interest rate of 4 or 5 percent as opposed to 10 to 20 percent. Prior to applying for a home equity loan or line of credit, be sure to talk to a mortgage broker or other financial adviser to determine the exact cost of refinancing.
Make Your Money Work for You
By consolidating debts at a lower interest rate, you get to keep more of your money each month. This allows you to either pay down your debt faster, put more money into a savings account or invest it for the future. By paying down debt or creating an emergency fund, you reduce the odds of facing a cash crunch later in life.
If you are struggling to pay your debt, it may be worthwhile to look into consolidation with professionals like those at Republic State Mortgage Co. Whether you choose to do so through a credit card balance transfer, a personal loan or a home equity loan, you should be able to get a lower interest rate while making it easier to keep track of your monthly payments.
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- Thomas Nelson
- Dave Ramsey
- Publisher: Thomas Nelson
- Erik Wecks
- Kindle Edition
- Edition no. 2 (03/08/2012)
Last update on 2020-03-19 / Affiliate links / Images from Amazon Product Advertising API
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