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Debt Cafe Resource Directory
Friday, September, 5th, 2008 |
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Debt Consolidation Math
If you are considering debt consolidation, you need to do the math in order to understand whether debt consolidation is for you. Among the important numbers you will have to calculate are:
•The point at which you will start saving money? If you will start saving money on your bills right away, that is great, but if it will take a while for you to realize savings, make sure that the savings are big enough to be worth the extra wait.
•How much will you save on interest over time and each month? Decide how much you will save on interest each month. What is the exact dollar figure you will spend on debt interest each month with debt consolidation? What is the exact dollar figure that you will spend on interest over the term of your loan or your repayment? The dollar figure should be a significant savings over what you are spending now and it should be an amount that you can live with. If this is not true for the debt consolidation you are considering, keep looking for another debt consolidation option that will help you save more.
•How long will it take you to repay your debts? Often, debt consolidation involves a long term of repayment, because the point is to make large debts affordable each month. However, you need to figure out how long it will take you to repay your debts with the debt consolidation option you are considering. If it will take you more than thirty years to repay a debt, for example, consider that even with a very low interest rate you will end up paying a lot if money in interest. Also, if during that term you need a loan to buy a home or car, you may not be able to take on another loan payment.
•What payments will you be making each month? What percentage of your monthly income is that payment? If your payments are too large or if they take up too large of a percentage of your income, then you may need to find another way to deal with your debts.
•What is the total amount of money you need to repay? Calculate the fees, the interest, and the principal amounts you will pay on your loan. The total should be affordable for you.
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