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Consumer Debt Consolidation

The average person in the United States has 5.4 open credit card accounts. This means that on any given day, the average consumer is paying anywhere from 9 to 19 percent interest on five separate accounts. Imagine how much you are paying in interest or rent to your creditors when you have this much plastic on hand. Can you see how easy it is to get in trouble with credit card debt.

Over half the American population suffers from debt issues. So, you are not alone.  What you choose to do about your debt problems is determined by how severe your credit problems are. One option for stopping the incessant rent payments to your creditors is consumer debt consolidation. This method of debt relief involves consolidating all of your credit accounts into one monthly payment with a fixed term and interest rate.

Let’s examine how consumer debt consolidation works. Let’s say you have three credit card accounts. One has a balance of $5,000, another $1,000 and the third card is $2,00. The interest rates on each of these cards is 10, 18 and 17 percent. That adds up to 45 percent in just interest payments. That doesn’t include the principal balance. If you moved your credit cards over to a consumer debt consolidation program, you can have loan at 20 percent. This type of loan has a high interest rate because it is often unsecured. Unless you want to tie up the equity in your home, you’ll have to go with the higher interest rate. But, when you compare that 20 percent to the 45 percent you were paying, it makes total financial sense.

Do you see the end in sight? Do you see the wiggle room in your budget starting to appear?

The second item you have to consider in consumer debt consolidation is the monthly payments. Let’s say on those three credit cards your monthly minimum payments add up to $125 each month, but you may be paying that $125 for 17 to 20 years. That’s a long time and many thousands in interest. If you consolidate your loans, your payment may be around the same amount or even a little more, but the difference is this fixed interest rate loan has an end date and you’ll save thousands because you are not paying revolving interest.

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