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What is Debt Consolidation? - Cobblestone Financial

Why would you consolidate your debts?


Debt Consolidation


Why would you want to consolidate your credit cards into a personal loan,  or consolidate smaller debts into

your home loan?


Lets look at Credit Cards to start with.....

Credit cards certainly come in handy, however, if you are finding it difficult to pay them off, you might want to consider a debt consolidation with a personal loan.  


Check out this hypothetical debt consolidation scenario…… 


This Client has 2 credit cards both at 26% interest. 

On one card he owes $10,000 on the other card, he owes $7,000 

His Total Monthly repayments for both Credit Cards are $501 per month 

In reality, there is a strong possibility that additional purchases would be made along the way, pushing up his monthly repayments and extending the time it takes to pay these cards off. 

If our Clients take out a personal loan with us for $17,000. He could pay out both of his credit cards over a 5-year term. Depending on the Client's particular circumstances and the rate applied, his repayments could be reduced drastically. 

For example, if our clients had clear credit and were given a rate of 8.5% and no monthly fees, his new repayments would be $348 per month.  This is $153 per month in savings.

If our client then puts this $153 per month he is now savings towards his loan repayments, he will pay off all his debt 1 yr and 9 months quicker. 

Not only that, but you can’t keep pulling money out of a personal loan the way you can a credit card. You are forced to pay it off in the allotted time no matter what.  It takes away the temptation and ensures your debts are paid down, not to mention the extra cash in your pocket every month!

Another bonus is that your credit score will improve. Credit card debt is considered negative, whereas personal loan debt is considered positive. If you close your credit cards, you are essentially closing off the negative components on the credit score and your score should increase.

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