To Consolidate or Not To Consolidate: A Comparison
Consolidating your debt can help you lower what you owe and help pay off
a debt faster. The total of your debts are rolled into a single loan, at
a lower rate of interest than what was being paid. If your debt is made
up of mainly credit card debt, consolidating debt is the best option.
Here is a good idea of the advantages of going with a debt consolidation company, as compared with someone who does not:
A person who chooses not to work with a debt consolidation company:
- John has a total credit card debt of $1000
- The rate of interest is set at 23%
- This would mean that John owes interest on top of the $1000 debt in the amount of $230 i.e. total debt is $1230.
Now, let's look at a person who chooses to work with a debt consolidation company:
- Sam merges his payments to a single loan.
- Sam owes $1000 also with his credit card debt
- Through negotiations of his debt consolidation loan, the rate is reduced to 7%
- This would mean Sam would only need to pay $70 on top of the debt of $1000 i.e. total debt is $1070.
- Sam saves a total of $160 in interest payments