Debt isn’t always a bad thing. Getting a loan to buy a house or a business for instance can be a very good decision. In general however, credit card debt is a bad thing, and outstanding loans for expenses that aren’t providing value greater than the cost of servicing that debt is something to be avoided at all costs. If you do have bad debt, our calculators and advice will help you create a plan to get rid of it as quickly and efficiently as possible.
If you have multiple debts that you’re unable to pay off right away, you should strongly consider a loan to consolidate your debts with lower interest than you’re currently paying. You can use our Debt Consolidation Calculator to see how much money you can save. Let’s go over one example. We’ll assume you have 3 outstanding debts:
Current Monthly Payment: $250
Current Monthly Payment: $600
Current Monthly Payment: $350
Now let’s assume you can get a single new loan for your combined debt of $28,500, for 5 years, at an interest rate of 9%. Your monthly payments would go from $1,200 to $592, so you’d have a monthly savings of $608.39 and you’d save $36,503 over the entire 5 years! And, if you continued to make the same monthly payments you’re making now, you could pay off your loan almost 3 years faster, and save almost $4000 in interest. As you can see, consolidating your debt into one lower interest rate loan can be a great way to go.
However, keep in mind that you should get the shortest loan term possible. You can reduce your monthly payment by extending the term of your loan, but this will also increase the amount of money you lose to interest in total. If you do decide to consolidate your debt into a single, lower interest loan, you should get the shortest term you can afford.
But what if your credit is too bad for you to get a lower interest rate loan? You still have options. Use our Accelerated Debt Payoff Calculator to see how much faster you can pay off your debt by rolling over your payments. In any case, the most important component of debt management is changing your behavior. If you don’t change your spending habits, neither consolidating your debts or using an accelerated debt payoff will work. You should not spend money you don’t have! That means if you have serious debt, you shouldn’t be paying for cable television, etc. Cut out everything you don’t absolutely need until you’ve paid off your debt. In the long run, you’ll be far better off.