Debt Consolidation : An Illustration Of Real Life Consolidation

734 Words Feb 10th, 2016 3 Pages
Debt consolidation may seem quite attractive and from the various purported benefits listed in every promotion for such services, it makes the realistic approach for many who may have limited insights about the area. Many hope that debt consolidations lead to paying less which is what they are led to believe. However, a keen look into the framework of debt consolidation reveals otherwise.

Evidently, you will be paying much less installments per month after consolidating your debt and this can be great relief. In debt consolidation, the interest rate is slightly dropped by one percent or two and the repayment period is significantly extended. Obviously, paying for much longer results in smaller installments but staying in debt longer is also known to result in excess repayment in the long run. In order to understand how debt consolidation works, its benefits and cons, it is important to look at an illustration of real life consolidation.

Sample debt consolidation

In this example, you have a total of $30,000 in unsecured debt which is spread as follows;

$10,000 at 12% per annum on a two year loan
$20,000 at 10% per annum on a four year loan
In these debts, you pay $517 on the $10,000 2 year loan and $583 on the $20,000 4 year loan. This adds up to $1,100 per month on the debt.

If this debt is were to be consolidated, you will be offered a slightly reduced interest of 9% per annum paying installments of $640 per month for 6 years. Clearly, you will be paying $640 as…

Related Documents