How young couples can use debt consolidation to pay off debt faster and save money
I was reading NBC News and came across a story about Paige McDonald. She’s a 39-year-old who borrowed $120,000 to pay for college. Now, Paige is a mother of two, and 14 years after finishing college, she owes $304,000.
Stories like Paige’s are making student loans a national crisis. In this post, I want to show you how you can use debt consolidation to lower your interest rate and pay off your debt faster.
Studentloanhero.com reports that 69% of students borrowed money for their degree in 2018. On top of that, 14% of parents took out loans to help their kids pay for school in 2018.
While borrowers are struggling to pay bills every month, lenders are enjoying a vacation in Hawaii. I mean literally, NBC News reported that Sallie Mae, the number one lender of student loans, took more than 100 employees to Hawaii to celebrate their $5 billion dollars in sales.
The real reason student loans continue to be a crisis is not because the cost of school has gone up. It’s not because lenders are evil. It’s because uninformed people are borrowing tens of thousands of dollars as a teenager, and don’t realize the consequences until it’s too late.
Now, I’m being real, I’m not speaking as someone that graduated college debt-free. Like most people, I borrowed money for school simply because I was uninformed. I chose to go to out of state college for my bachelor’s degree. Then I chose to go to a private school for my master’s degree. At the same time, my wife went to college in our hometown, and she didn’t have to borrow any money.
In Proverbs 22:7 Solomon, one of the richest men in history, warns us against borrowing money. The verse reads, The rich rule over the poor, and the borrower is slave to the lender.
Because most people never hear this type of wise counsel, they find themselves chained to a job they hate, just to pay a loan that they regret they ever borrowed. One tool you can use to relieve the stress of debt is debt consolidation.
I met with Henry and his wife Sasha. They owed $42,000 in student loans. They wanted to know if they should take out a home equity loan to pay off their student loans? I believe the tips that I gave Henry and Sasha will also help you.
If you want to pay off your debt faster and lower your interest rate, here are six tips on how to do debt consolidation, the right way.
For starters, debt consolidation is the process of combining multiple loans into a single loan. The goal is to lower the payment and go from multiple payments to a more manageable single payment.
1. Not All Debt Consolidation Is Good
Here’s tip number one, understand that not all debt consolidation is a good thing. It’s extremely important that you do this the right way, because if you don’t you’ll end up paying a lot more money, and it will take you a lot longer to pay off the debt.
I spoke with the lady who bought a home in the 1980s for $35,000. She took out a home equity loan to pay off debts. She now owes $150,000 on a new 30-year mortgage.
The next few tips here are the things you should look for before you agree to do debt consolidation.
2. Don’t Use Home As Collateral
Tip number two is, don’t put your home up as collateral to pay off the debt. When you get a home equity loan or a line of credit from your home, that’s what you’re doing. If you fall behind on the payments, you could risk losing your home.
Instead, you can use a credit card balance transfer or just get a personal loan to consolidate your debts.
3. Get Lower Interest Rate
Tip number three is to make sure the interest rate is lower than what you already pay. If your current interest rate is 7%, you only want to consolidate if the new interest rate is less than 7%. This means you’ll save money on interest.
4. Shorten Repayment Period
Tip number four is to make sure the repayment period is equal to, or less than your current repayment period. If you don’t, it can take you a lot longer to pay off your loan, and it will cost you a lot more money.
So, if your current repayment period is 72 months, you want your new repayment period to be less than 72 months.
5. Can You Afford The New Payment?
Tip number five is to make sure you can afford the new consolidated payment comfortably. You don’t want to consolidate only to find out that the new payment is way more than you can afford.
This can cause you more stress, and create more strain on your financial situation.
This is something people don’t always take the time to think about. They may consolidate their debt when they’re getting a lot of overtime at work, or they just got a nice windfall of money, so they think, “Oh hey, I can to afford this new payment.” However, in reality, if the overtime cuts back, or that extra money runs out, you’re in a tough situation.
6. Create Cash Flow Plan First
Here’s a tip number six, don’t consolidate until you’ve created a cash flow plan, and you know your income and expenses every month.
You need to be clear about what you can afford. You can only do this with a cash flow plan.
If you don’t have a cash flow plan, you’ll find that debt consolidation won’t help you at all. Debt consolidation will only work if you make sure you have a strong financial foundation. If you don’t know where you stand financially, you’ll end up overspending and continue to use credit.
This Will Motivate and Inspire You to Pay Off Debt
I know getting out of debt is draining. To help you stay motivated I created “Done With Debt.”
It’s a free devotional with 28 Bible verses to help you stay inspired on your debt-free journey. You can download the devotional for free by CLICKING HERE.
Let Me Help You Develop Your Debt Elimination Planning Service
If you want help getting out of debt, my firm offers debt elimination planning. We work with you to create a debt elimination plan that will help you save money and pay off your debt faster. You can visit Greenfinancialsolutions.net to learn more about our debt elimination planning service.
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