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How to Determine If Debt Consolidation Is Right For You

Lisett Comai-Legrand

Lisett Comai-Legrand About The Author

Feb 8, 2018 7:26:00 AM

Recently, we've been offering our members and those looking for information about debt consolidation, the opportunity to download a debt consolidation calculator. But first, we wanted to make sure that everyone understands how to use the calculator, and what the results mean. Here is your step by step guide to understanding if debt consolidation is a good option for you by using the free debt consolidation calculator.

What is Debt Consolidation?

Most people have debt, whether it's from credit cards, an auto loan, or a mortgage. There is nothing wrong with having debt. But as we all know, life happens, and when it does, you can end up with more debt than you can handle.  The ultimate goal of debt consolidation is to put all or most of your debts into one loan so that you have one, low monthly payment. 

Now that you understand what debt consolidation is, let's go through how to use the calculator.


Haven't downloaded the Debt Consolidation Calculator yet? 

Download Your Free Debt Consolidation Calculator Here

....and follow along!


 

Step 1: Enter Your Debts

Let's review the first section of our debt consolidation calculator:

what is debt consolidation

In the example above, I have entered a list of example debts into Column A,  and the current balance of each of those debts in Column B. In Column C, I have entered the interest rate for each debt. In Column D, I have entered the monthly payment amount owed for each debt. 

At the bottom, in the red section called Summary of Your Debts, all of the information is totaled automatically. In this example, the total credit card debt and medical debt is $35,300, the average interest rate is 16.59%, and the totaled monthly payments is $1,300. 

Columns E and F show the months and then the total number of years it would take to pay off each of the listed debts.  According to this example, it would take approximately 5 years to pay off all the debt and as shown is  Column G it would cost $11,641 in total interest over that time. Wow!

Here are the key things to remember before we go any further:
  • Total Debt: $35,300
  • Average Interest Rate: 16.59%
  • Total Payment Amount: $1,300
  • Years to Payoff: 5 Years

Remember, according to this example, I would be making 10 different payments to 10 different lenders in one month, and at different times. This can make budgeting very difficult.


Step 2: Compute Your Payments

This section of the calculator will show you approximately how much your debt consolidation monthly loan payment would be based on your total debts to be consolidated and your estimated credit score. 

debt consolidation calculation

The first line is Loan Amount, your total debt owed ($35,300 in our example) will auto populate into this section for you.

Next, select your estimate credit score from the drop down. Entering your credit score is improtant because interest rates are often based on your credit score. In this example, I chose an average credit score range of 661-680Based on the information that has already be populated, the interest rate automatically populates

Next, you will need to choose a term from the drop down. For this example, I used four years. When choosing a term, it makes sense to be realistic about what type of payment you would be comfortable with. Feel free to test all the term options to see how that will affect your monthly payment.

Once this information has be input into the calculator, the new monthly payment will generate. In this example, the debt consolidation loan would have a monthly payment of $895.00.

Here are the key things to remember before we go any further:
  • Total Loan Amount Based on Current Debt: $35,300
  • Average Interest Rate: 9.99%
  • Total Payment Amount: $895
  • Years to Payoff: 4 years

Step 3: Compare the Savings

This section of the debt consolidation calculator compares what your debts are now versus after a debt consolidation loan.  You are able to compare the savings on monthly payment, years to payoff, and total interest paid.

Payment

Using our example, under Total Monthly Savings, users can see that payments would decrease from $1,300 to $895 each month - which would be a savings of $405 per month

In the Total Term Savings section, users can see that all debt would be paid off in 4 years instead of 5 years, which paying off your debt 1 year sooner. This will translate into savings on interest paid over time as well.

In the Total Interest Savings section, you can see a savings of $3,974 in interest  over the life of the loan (4 years) by consolidating all debts owed into one payment.


Benefits of Debt Consolidation

So, in my hypothetical situation, debt consolidation would benefit me in four ways:

1. I would save a lot of money! Instead of paying $1,300 a month for 5 years, I would be paying $895 per month for 4 years. That's a savings of $405 per month. 4 years is 48 months, so over 4 years, I will have saved $19,440 if I put all of that money into my savings account.

2. I would get out of debt one year faster than if I stayed on my current path. 

3. I would save on interest. Instead of paying $11,641 over 5 years, I would only pay $7,666 in interest over 4 years. I would save $3,974 in interest payments. 

4. I would save time and hassle. Instead of making 10 different payments to 10 different creditors, and various times of the month, I would be making 1 monthly payment to 1 lender, on a date of the month that I am most comfortable with. 

Debt consolidation can help save you money, time, and interest, while getting you out of debt faster.  I encourage you to take a moment and give our debt consolidation calculator a try. If you get stuck, just contact us, and one of our awesome Member Service Representatives can help walk you through it.

Lastly, even if our calculator shows you that debt consolidation isn't the right option for you. I would still encourage you to contact us, we may have other solutions to your specific situation to help you get your finances back on track and under control. 


Schedule a Debt Consolidation Appointment Today.  No Judgement. Just Guidance.


For even more information, check out our Facebook Live Debt Consolidation Q&A


Want to know more about debt consolidation? Check out this video from KIMT News 3, featuring our Executive, Mike Rosek.

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