You might be able to save thousands of dollars, by folding high cost debt into one, better priced loan, says Steve Distant, chief, retail sales at JN Bank.
“Keeping up with the repayment of loans to several different institutions can be challenging, and when those debts are at high interest rates, it can become stressful,” Mr Distant said, pointing out that, “Consolidating multiple debts into a single one at a better rate, can be a good financial strategy in these circumstances.
“It is easy to get into a debt trap where high interest rates make loans difficult to repay,” he explained. “Because, without careful attention, auto loans, personal and credit card debts can spiral out of control.”
A debt consolidation loan is a new loan used to pay off old loans, he stated, adding that the borrower needs to consider a number of factors in order to carry out a successful consolidation.
“You need to be honest and open with your banker,” he said. “A debt consolidation will have maximum impact if you include all your debts, and end up making one payment.”
He further explained that banks do credit bureau checks to determine whether the person has a good track record to pay off their obligations, or unreported outstanding debts.
“Consolidation means folding multiple loans together, but such loans are also available to switch out from one loan carrying a high interest rate,” Mr. Distant advised. “The basic aim is to reduce your debt burden.”
He added that he always advises borrowers doing debt consolidation, to start a savings plan, using a portion of the interest payments they save.
“If you cut your payments by $30,000 due to debt consolidation, then you need to put away a portion of it to make your life easier,” he told the participants. “This allows you to take advantage of financial opportunities, such as buying a house.”
“With consolidation, you can explore matters, such as interest rates, fees and credit scores with your banker,” Mr Distant stated, “But the bottom line is the reduction in payments you will experience. It is not rocket science.”