A debt consolidation loan allows you to pay off all your financial obligations with a single monthly loan payment. It can be a smart choice for consumers with many different debt payments or those seeking to obtain a lower interest rate.
Research Consolidation Loans
Figure out the terms of your consolidation loan will have before calculating monthly payments, Critical information includes: the amount borrowed, the interest rate, and the loan term. To find the amount you need to borrow, add up all the principal balances on the debts you wish to consolidate. Determine the length of time needed to repay the loan: this is you loan term. The sooner you repay the loan, the lower your total interest charges will be. Contact several lenders to obtain and compare quotes on interest rates.
Basic Payment Calculator
Most debt consolidation occurs through installment loans, meaning you take out a loan for a specific amount of money and repay the entire amount over a period of time. The monthly payment is the same every month for the duration of the loan. Plug the information about the loan amount, its interest rate and its term into a basic installment loan calculator, such as that offered by Bankrate.com. For example, a debt consolidation loan of $30,000 at 10 percent annual interest, to be repaid over 10 years, requires a monthly payment of $396.45.
Advanced Payment Calculator
Some online calculators let you input data on all your current debts, in addition to basic information about your consolidation loan. The calculator's results allow you to compare the payments, total interest costs, and total additional costs for each situation. This information helps you decide whether to take out a debt-consolidation loan. To use an advanced calculator, type the principal balance, interest rate and monthly payment of each of your current debts in the calculator. Also, type in the interest rate and terms of your consolidation loan to calculate the monthly payment and your potential savings.
Home Equity Loan Considerations
Using a home equity loan to consolidation debts usually provides a lower interest rate than a personal loan does. You also may qualify for a tax deduction, if you deduct interest on a home equity loan on your taxes. Some advanced calculators take this tax deduction into account to estimate the tax savings of using a home equity loan to consolidate debt.
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