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Our Blog

28
Oct

How To Use Debt Consolidation Techniques To Save Money

Money doesn’t grow on trees but it could grow in your savings account if you consolidate your debt. 

Meet Tommy…

To explain the benefits of consolidation, let’s look at how it might help a guy we’ll call Tommy. He has a $200,000 30-year mortgage at 4.5% giving him a monthly payment of around $1,000. As he also has $20,000 of credit card debt, his monthly bills add up to $1,600. Because of the high-interest debt on his credit card, he’s paying over $300 per month more than he has to. If he were to consolidate his debt onto one payment that attracted a lower interest rate, he could save over $4,000 per year. That’s more than he got on he got on his last pay raise! 

What Could You Consolidate?

Auto loans, credit cards, second mortgages and even school fees can all be consolidated. Debt consolidation simply means getting out of high-interest debt and moving towards forms of debt that carry a lower rate of interest. Debt consolidation companies simply help you to do this. Here we will look at three debt consolidation techniques you can use to save money today!

1. Ask For Better Interest Rates

Whatever they might tell you, debt consolidation specialists don’t have any special avenues open for them that aren’t also open to you. If you become their client, they will simply call your creditors on your behalf. Sure, their experience might give them better results but it doesn’t mean you can’t try! The simplest form of debt consolidation is just to call up the companies you owe money to and ask for lower interest rates. All companies are happy to work with customers that are willing to pay off their debts. Your route to lower interest rates could be just a phone call away. 

2. Move Debts To A Lower Interest Loan

Credit cards often reel you in with low introductory interest rates and then sting you with high ones. This sends your repayments spiraling and can tempt you into paying just the minimum each month. This not only harms your credit score but causes you to pay much more in interest than you originally bargained for. To solve this, either move your high-interest debt into lower-interest rate credit cards or use the equity in your home to consolidate your debt into one payment. This will lower your monthly repayments and let you clear the debt while paying less interest. In doing so, be aware than your home may be at risk of repossession if you fail to keep up with repayments. 

3. Borrow From Yourself

Everyone needs a safety net of savings in case they lose their job, get sick or have to cover an emergency. Experts recommend that you have at least three months salary as an ‘emergency fund’ but just how essential are the other savings you have? The sense of security that savings bring is so precious, people think emotionally not rationally. For example, if your savings are earning 1 percent and your credit card debt is costing you 18 percent, where is the advantage? However emotionally difficult it might be, using your savings to pay off your high interest debt is the best way to consolidate and save money.

by Benson Mortgage
in