Reduce Debts By Consolidating - The Inside Scoop

Does consolidating reduce debts? Not really. So what does it do? In a nutshell, when you choose the right consolidation loan, you are choosing to save a fortune over choosing to sink in deeper debt.

How could you tell you are doing the right thing?

Let’s check out the following concepts and see the results…

Concept #1 : Transferring a balance just because a lower minimum payment is required.

Let’s say your current credit card situation is as follows:

Let’s also say you always pay the minimum on the card. One day, you see an ad stating you can “lower your monthly payment” (lets call this Option B) because the minimum monthly percent payment is 1.67%, and all you have to do is transfer the balance.

Then you do your homework…

Bottom-line – In most cases, the lower you pay per month, the more you pay overall.

Solution - Do not choose Option B. Instead, increase your monthly payments for Option A when possible. If you can’t afford to increase your payment one month or two, that’s OK, but make it a point do so by finding $10, $15, $20 or more from everyday urges. It’ll make a huge difference in the long run.

Concept #2 : Transferring a balance just because of a lower interest rate.

Let’s say you have multiple credit cards and your situation is as follows:

One day, you see an ad stating you can “lower your interest” (lets call this Option B) and you check out what they can offer you: a tantalizing 12.9% interest rate (6 percentage points better, woohoo!), and all you have to do is transfer the balance.

Is this the way for you to reduce debts? Sure seems like it, but then you STILL do your homework…

Bottom-line – A lower interest rate does not necessarily mean you will pay less. You need to also check the minimum percent required. If it’s a lower monthly payment percent, the debt will last longer and you will pay a greater amount of interest.

When you are seeking to consolidate multiple cards into one, compare the total interest of your current (Option A) vs total interest charges with the consolidation loan.

Solution - It depends. If you can only pay the minimum, choose Option A. If you choose Option B, you must know for sure you will not pay the minimum but substantially more.

In the mean time, keep looking for another consolidation option with lower total interest charges, and go for it- this will reduce debts in the long run.