All About Debt Consolidation

While its mechanics are fairly basic and straightforward, a debt consolidation loan can work magic on your budget by saving you money every month as well as over time. That's because the loan is given in one lump sum to the borrower, who uses the money to pay off all of his or her revolving credit accounts and other debts. By no longer having a balance to bring forward and add interest to, the credit card companies lose their grasp on their customer's financial future. With the revolving accounts effectively stymied, the borrower now has only one payment to make on the debt consolidation loan. And suddenly his or her life is no longer all about debt.

How a Debt Consolidation Loan Saves You Money

Like any other fixed-rate loan, the interest on an All About Debt consolidation loan is calculated using the total amount borrowed and then spread out over the life of the loan. So right from the start you'll know exactly how much you're expected to pay each month and how long it's going to take you to satisfy the loan. That arrangement is in sharp contrast to the one you had with your credit card companies, which regularly recalculated the interest based on each month's balance and charged only enough to guarantee the balance wouldn't decrease very much. So by paying off several of your revolving accounts with one loan, you'll be replacing several monthly bills with one low-interest payment. You'll likely feel especially good about the extra cash you pocket every month, knowing it otherwise would have gone to pay high interest charges on your old credit accounts.

Plus, because you'll no longer be paying off just the high interest charges that are tacked on to your monthly balance, your principal will steadily decrease until it's finally gone. And with interest rates still lower than they've been in years, the money you spend over the life of a debt consolidation loan won't even compare to the cash you would have shelled out had you kept your former accounts active.

Get 'em While They're Hot

Historically, interest rates have been tied to the state of the nation's economy--when the economy is faltering, rates are low; when it soars, so do interest rates. So it makes sense that in these trying economic times, interest rates have dipped to the lowest they've been since the Eisenhower administration. But they might not last much longer. Economic stimuli put in place by the president, in addition to declarations of support by several foreign governments, have prompted economic forecasters to predict the start of a financial turnaround in coming months. That means time could be running out on being able to take advantage of low interest rates. To put off looking into a debt consolidation loan through All About Debt could prove to be a costly delay.