Consilidating debt closing business
This works out to 36.88 being paid in interest alone.
If the same individual were to consolidate those credit cards into a lower-interest loan at an 11% annual rate compounded monthly, he or she would need to pay 2.16 a month for 24 months to bring the balance to zero.
Individuals 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 that debt consolidation loans are most helpful for those 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 making payments or are unable to negotiate lower interest rates on loans.
They also tend to have higher interest rates and lower qualifying amounts.
Even so, the interest rates are still typically less 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, Md., and author of “How to Get Out of Debt.” These types of loans don’t erase the debt; they simply transfer all your debts to a different lender or type of loan.
More traditional, unsecured debt consolidation loans, which are not backed by assets, can be more difficult to obtain.
This amounts to a total savings of ,371.52 (,750 for payments and ,621.52 in interest).
Of course, borrowers must have the income and credit worthiness necessary to allow a new lender to offer them at a lower rate.
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These loans are usually offered by financial institutions, such as banks and credit unions; there are also specialized debt-consolidation service companies.