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Saving Money Through Debt Consolidation

By: Elite Legacy Education, December 7, 2016

Saving Money Through Debt Consolidation

Do you have loans from a variety of different sources, whether it’s mortgage payments, car payments, student loans or anything else? We all know that paying interest is no fun, but why pay more interest than you have to? There are options out there that can make your life much simpler in terms of having to keep track of fewer bill payments, as well as pay less interest. You may be wondering why you didn’t know about this option before. At least it’s better late than never, so here’s what it’s called – debt consolidation.

 

What is debt consolidation?

Debt consolidation is the concept of replacing multiple outstanding debts from different sources with one larger loan from a single creditor. Essentially, you receive a loan that is large enough to cover the remaining amount on each or some of your outstanding loan balances. So instead of paying back each of these loans individually, you just focus on the one loan received from a single creditor. This could be used to pay debts including:

  • Auto loans
  • Student loans
  • Mortgages
  • Credit cards
  • Any other types of debt that charge you interest

 

The idea of having one massive, all-encompassing debt may not sound too appealing, but it has its benefits if you think about it.  For example, wouldn’t it be nice to be able to pay down all of these outstanding debts and focus on just one set of loan payments? Not only is this easier to keep track of in terms of due dates, there’s also a financial incentive tied to debt consolidation.

 

How does consolidating my debt save me money?

As we mentioned, there’s a clear financial incentive tied to debt consolidation in addition to the fact that it is easier to keep track of. It requires a comparison between the current levels of interest you are paying across each of your outstanding loans versus the interest rate offered on the consolidated loan.

First, you will want to consider the interest rate charged on each of your multiple loans. Once you have these rates, you can calculate a weighted average based on the outstanding principal of each debt. This represents the current level of interest that you are paying. Essentially if any interest rate lower than the one you have just calculated is available, then you have the opportunity to save money.

So back to our consolidated loan. Typically, this single lump sum loan offers a lower interest rate than the average interest rate on all of your other loans. Ideally, you use this lump sum to pay off the other loans and so you essentially avoid making any more interest payments at the previous rate. Instead, you are now subject to the rate on the single debt loan, which as we mentioned is lower. Thus, by choosing to consolidate your debts, you save an amount equal to the difference between the average rate of the multiple loans and the rate of the single debt loan.

 

Who offers debt consolidation services?

So now that you understand the mechanics behind debt consolidation, where can you find someone that will offer this service? Here we’ve provided a few options to get you started:

  1. Your current bank or financial institution. Inquire with your current bank about a line of credit which you can use to pay down remaining loans.
  2. Businesses that specialize in debt consolidation. There are businesses that exist for exactly this purpose. Doing a quick Google search will surely reveal some near you.
  3. Private lenders. Of course, you have the option of trying to find a private lender who is willing to provide you with such a loan.

 

So the bottom line is that if you have multiple outstanding loans, then it could be worth inquiring about debt consolidation services. You may as well save money where you can and this is a great place to start!

There's never a shortage of money looking to back a great deal. It's simply knowing where to find it. By attending a Rich Dad Education event, you will be introduced to a variety of funding sources and our Rich Dad Education speakers will demonstrate which sources fit different types of real estate investments.

There's never a shortage of money looking to back a great deal. It's simply knowing where to find it. By attending a Rich Dad Education event, you will be introduced to a variety of funding sources and our Rich Dad Education speakers will demonstrate which sources fit different types of real estate investments.

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