If you were to pay off each credit card separately, you would be spending 0 per month for 28 months and you would end up paying a total of around ,441.73 in interest.
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There are also several consolidation options available from the federal government for those with student loans.
Theoretically, any use of one form of financing to pay off other debts is practicing debt consolidation.
“If the principal is paid down faster [than it would have been without the loan], the balance is paid off sooner, which helps to boost your credit score,” says Freeman.
For example, say an individual with three credit cards and a total of $20,000 owing at a 22.99% annual rate compounded monthly needs to pay $1047.37 a month for 24 months to bring the balances to zero.
This amounts to a total savings of $7,371.52 ($3,750 for payments and $3,621.52 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.
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.
This works out to ,371.84 being paid in interest.
The monthly savings is 5.21, and over the life of the loan the amount of savings is ,765.04.
Debt consolidation loan interest payments are most often tax deductible when home equity is involved.