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Consolidate Your Debt
& Gain
Financial Freedom

Consolidate Your Debt

The key is committing to fixed, not revolving, monthly payments. Debt consolidation is when you transfer all of your debt to a single loan.

The key to getting rid of debt is to commit to fixed, not declining, monthly payments. Even with your 19.75% credit card, if you were to pay off the debt at a fixed rate of $600 per month, the amount of your first payment, you would pay the debt off in only 49 months, or a little over 4 years, and pay $9236.76 in interest. This is clearly a lot better. But you can do much better still with a home equity loan.

In the real world, of course, your debt may not reside on one, but multiple credit cards. Debt consolidation is when you transfer all of your debt to a single loan.

Suppose you take out a home equity loan at 10% interest. If you pay it off at $600 per month, you will retire the debt in 40 months - nine months sooner than with the credit card. But best of all, your interest cost will be reduced from $9236.76 to $3528.32. That's $5,708.44 in your pocket, or an almost a two-thirds reduction in interest costs with exactly the same monthly payments!

Here is the criteria that is used:

Add up all your credit card debt
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Take out a single loan, such as a home equity loan, for the total amount.
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Use the proceeds of the loan to pay off all your credit cards in full.
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Pay off the loan in single monthly payments. If you use a home equity loan, the interest rate will be half of what you paid on the credit card, or even less.
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