Debt consolidation can help a person get out of debt quicker and reduce the total amount owed, according to Houston Fraley, financial entrepreneur. Consolidation unifies many loans or debts into one, which typically features a lower interest rate than some of the consolidated debts. Although a monthly payment remains, it usually costs less than all the separate payments.
Methods of Debt Consolidation
A person consolidates debts into one payment using one of two methods. They might take out a personal loan in the total amount due and use it to pay off every bill at once. Alternatively, they might register with a non-profit that consolidates the various debts and negotiates lower payments.
Personal Loans for Consolidation
The source of a personal loan varies. Some individuals use a financial lender like Symple Lending, while others borrow from a family member or friend. Other options include personal loans from local banks or peer-to-peer lending platforms like Upgrade or Happy Money.
Consolidation through a Non-Profit
Non-profits, like Care One, let people consolidate their credit cards and loans. Any account registered for consolidation gets closed, so a person using this method no longer has open credit cards. The non-profits negotiate significant reductions in the amounts owed and can nab much lower interest rates for the debtor. The debtor makes a monthly payment to the non-profit, which distributes that money to the creditors.
Speeding Up Repayment
Once a debtor consolidates, regardless of the method used, they still must make monthly payments. Making extra payments can save money by reducing the length of the loan, thereby the amount of interest paid. Where do you find extra money when already cash-strapped? Let’s consider some easy ways to free up $50 per month, some of which Budgeting Couple features, too.
- Cancel streaming or gaming subscriptions. The most basic World of Warcraft subscription costs $14.99 per month. Hulu costs $9.99 per month. Cancelling both frees up nearly $25 for an extra credit card payment. Use a free service like Tubi or Pluto for streaming.
- Skip going to Starbucks once per week. Assuming you have simple tastes, a venti cafe latte costs $4.15. Combine it with a ham and cheese turnover ($3.45) and a cookie for dessert ($3.25), and you’ve spent $10.85 before taxes. Pack your lunch and watch the savings add up.
- Ride your bike or walk once per week to any location to which you usually take an Uber, Lyft, or drive to reach. It doesn’t have to be as long as the average ride-share trip of six miles. Because of base trip fees and taxes, even a short, two-mile trip costs between $6 and $11.
- Switch two brand-name grocery items to the store brand. For example, switching from brand-name saltine crackers ($3.75 to $3.95) to store brand ($2) when shopping at Dollar General, saves nearly $2. Do the same when purchasing pasta or rice to save $2 to $3.
Those four tiny changes don’t create much difference in living life, but added together, they equal an extra $50 each month to pay off a debt.
Get more out of debt consolidation by tightening your budget, too. Small changes can make a huge difference. Get out of debt today!