How to Calculate New Rates
Some things to look at are:
- Monthly interest rates
- Repayment amount
- How long you think it will take to pay off the total (including accumulated interest)
Calculate how much you need to borrow to cover your total debt amount. Make sure this includes all interest and fees to pay off your debts early. Many banks and financial institutions have calculators for this online if you don’t feel like doing it by hand. Once you have it all calculated out, see how it would compare to a debt consolidation loan. If the consolidation loan is substantially less, then it’s safe to say it will be a great option for you!
Example Scenario
Andrea has a credit card with $10,000 outstanding, a second card with $5,000, and a car loan for $15,000. Instead of making three payments at different times of the month and paying three separate interest rates, Andrea can consolidate all three amounts into one $30,000 personal loan. This personal loan for debt consolidation has one regular payment and a lower interest rate than that of the combined loans, which saves her money and makes it easier for her to plan out her budget in advance.
Things to Consider Before Consolidating Your Loans
Only sign up for a new loan if it’s without a doubt the best option financially for you, and you’re sure that you can pay it off in the time required.
If you’re having trouble paying back your loans, consider talking to your loan provider to see if they can work out an alternative payment plan or extend your loan period. This would be easiest to try with your utility provider if you’re behind on electricity, phone, or other utility payments. If you’re struggling with multiple credit card payments, you may also be able to get a credit card balance transfer, but this may not make financial sense for your situation. Seek financial counselling if you’re confused about what’s best for you.
The most important thing is to avoid getting deeper into debt. If you will get access to more credit through a consolidated loan and you’ll be tempted to spend more, think about the long- term implications. Also, think very seriously about using your home as an asset. Refinancing your home is not a good option if there’s any doubt that you’ll be able to pay your debts back in the time period required by your loan agreements.