Is consolidating debt good


05-Jul-2017 18:49

is consolidating debt good-56

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Of course, borrowers must have the income and credit worthiness necessary to qualify with a new lender, which can offer them at a lower rate.

Although each lender will probably require different documentation depending on your credit history, the most commonly required pieces of information include a letter of employment, two months' worth of statements for each credit card or loan you wish to pay off, and letters from creditors or repayment agencies.

You usually work with a debt-relief organization or credit-counseling service.

These organizations do not make actual loans; instead, they try to renegotiate the borrower’s current debts with creditors.

Freeman says debt consolidation loans are most helpful for people who have multiple debts, owe ,000 or more, are receiving frequent calls or letters from collection agencies, have accounts with high interest rates or monthly payments, are having difficulty in making payments or are unable to negotiate lower interest rates on loans.

Once in place, a debt consolidation plan will stop the collection agencies from calling (assuming the loans they're calling about have been paid off). The Internal Revenue Service (IRS) does not allow you to deduct interest on any unsecured debt consolidation loans.

They also tend to have higher interest rates and lower qualifying amounts.

Even so, the interest rates are still typically lower than the rates on credit cards. “Typically, the loan has to be paid off in three to five years,” says Harrine Freeman, CEO and owner of H. Freeman Enterprises, a credit repair and credit-counseling service in Bethesda, Maryland, and author of “How to Get Out of Debt.” These types of loans don’t erase the original debt; they simply transfer all your loans to a different lender or type of loan.

Debt consolidation loan interest payments are often tax-deductible when home equity is involved.For example, say an individual with three credit cards and a total of ,000 owing at a 22.99% annual rate compounded monthly needs to pay

Debt consolidation loan interest payments are often tax-deductible when home equity is involved.

For example, say an individual with three credit cards and a total of $20,000 owing at a 22.99% annual rate compounded monthly needs to pay $1,047.37 a month for 24 months to bring the balances to zero.

This works out to $5,136.88 being paid in interest alone over time.

Say that you have three credit cards that charge a 28% APR; they are maxed out at $5,000 each and you're spending $250 a month on each card's minimum payment.

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Debt consolidation loan interest payments are often tax-deductible when home equity is involved.For example, say an individual with three credit cards and a total of $20,000 owing at a 22.99% annual rate compounded monthly needs to pay $1,047.37 a month for 24 months to bring the balances to zero.This works out to $5,136.88 being paid in interest alone over time.Say that you have three credit cards that charge a 28% APR; they are maxed out at $5,000 each and you're spending $250 a month on each card's minimum payment.

,047.37 a month for 24 months to bring the balances to zero.This works out to ,136.88 being paid in interest alone over time.Say that you have three credit cards that charge a 28% APR; they are maxed out at ,000 each and you're spending 0 a month on each card's minimum payment.

If you were to pay off each credit card separately, you would be spending 0 per month for 28 months and you would end up paying a total of around ,441.73 in interest.

These loans usually are offered by financial institutions, such as banks and credit unions, but there also are specialized debt-consolidation service companies.