Substantially Lower Your Total Monthly Loan Payments
Typically, you can get a much lower interest rate on a consolidation loan than the
percentages you are paying on most of your credit cards. Credit cards can run 16% to 28%
interest, depending upon your credit history and credit score. In addition, the U.S. Congress
has authorized an increase in the minimum monthly payment you are required to pay. The
new minimum monthly credit card payment will be about 4%, up from 2%. This will
obviously raise your minimum monthly payment amount. Remember, you should only
consolidate if the interest rate on your consolidation loan is lower than the interest rate on
the Loans you are consolidating.
It Is Much Easier to Make Fewer Monthly Payments
When you have many credit card and other payments, it is inconvenient and time
consuming to have to make so many individual payments. To top it off, it is much easier to
accidentally miss a payment, making your credit even worse. This will drive your loan and
credit card payments even higher and make your life more difficult. You have a much easier
situation if you have only one loan payment to worry about.
Pay Off Your Loans and Debts Much More Quickly
Because your monthly interest payments are so much lower, you can pay off your loans,
debts and credits cards much more quickly. This can save you substantial interest
payments over the long term. Be careful though, if you stretch out a debt consolidation loan
too long, you could end up pay substantial interest. Even though the interest rate is much
lower, you have the ability to stretch out the repayment for a longer term.
You May Be Able to Avoid Bankruptcy With a Consolidation Loan
If you think you are close to declaring bankruptcy because of too little cash flow, a
consolidation loan may be just what you need to free up extra cash each month to allow
you to meet your financial obligations.
Paying Off Your Debts With a Consolidation Loan Can Stop Creditor Calls
If you dread those phone calls from creditors you can get relief with a consolidation loan .
By paying credit cards or other loans off, or bringing your financial obligations current, you
can end the constant stream of collection and creditor phone calls.
A Consolidation Loan Can Have Substantial Tax Benefits
In many cases, you may be able to deduct loan interest as expenses before paying income
tax. You will reduce your taxable income by the interest amount. In addition, this may also
put you into a lower tax bracket, further lowering your tax burden. You need to check with
a qualified tax professional to be sure.
A Consolidation Loan Can Help Eliminate Late Payment Fees
Since you are only making one payment, you chances of making late payments are reduced
considerably. This is one of the places people get behind on their payments. You are late
with a payment, so the credit card issuer adds a $39.95 late charge. Now you have an even
larger payment and a greater balance to deal with. By reducing the chance of late payments,
a consolidation loan can really help get your financial life under control.
Something else to consider is that many credit card companies have what's called a universal
default clause. The universal default clause states (in the very fine print) that if you are
more than 30 days late on a payment, they can invoke the clause and up your interest rate
to those in the terms of your credit card agreement (These can reach about 30%!). The
problem is that this clause looks at all your financial obligations. If you are more than 30
days late on your Nordstrom card, for example, your Visa card interest rate could go up.
