Debt consolidation

Debt consolidation is one strategy that exists that can make managing your debt far simpler by by rolling all of your debt into one single payment that has a lower percentage of interest. According to companies like SoFi, the first thing to realize is that debt consolidation is simply the debt you do not pay and by not paying it you reduce the amount of interest your lender takes. The first step to debt consolidation is to find out which loan will be consolidated into what type of payment. If you pay all of your debt using the minimum payment of $1,000 for most of it, it would be easy for your bank or credit union to consolidate your debt into a $700 payment.

Determine What Your Loan Principal Is

If you are making minimum payments with your existing credit card, you are probably paying a higher interest rate than you could have otherwise. You can start by calculating your loan principal on your card and finding the highest available interest rate you are paying on it. If you are not having trouble making payments on your existing credit card, you can simply multiply your loan principal by 100% (or your credit card’s average interest rate) to find the minimum payment you would need to pay to stay within your credit limit. Step Three: Identify Which Interest Rates Will Impact You Most The next step is to compare your current interest rates to your most likely potential interest rate based on the credit cards you have, the length of time you plan to keep the card, and your expected future earnings. For example, say you have a 15-year loan with an average interest rate of 11%, but you plan to keep the card for a decade or more. Your current interest rate is 9.5%, so your interest rate would be 9.5% x 15 years = $35,000. Next, you would subtract a certain numberusually 15% to 25% for first-time cardholders and 30% to 35% for those who have had their cards for several yearsfrom the current rate and calculate the average interest rate you’d be charged if you kept your card. Keep in mind that, just like any other investment, interest rates can fluctuate over time. For example, if the Federal Reserve increases interest rates in the future, you might have to pay more interest at the time you originally signed up. If you have a card, this is especially true if the rate you’re currently paying is higher than what your card issuer offers. Since you can’t really predict your future interest rate, the best you can do is make sure you pay a certain amount of interest each month to ensure a low interest rate and to avoid interest charges for life.

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