Real Life Debt Consolidation Loan Example
You have a gas card with a balance of $400 at 18%, a Master Card with $6000 at 14%, a VISA with $8000 at 15.9%, and a department store card with $6500 at 22%. You owe a total of $20,900. Your local bank charges 12% interest for equity loans and has an $800 loan origination fee. Your strategy might be to borrow $20,900 with an equity loan from the bank to payoff all your balances, and close out the accounts. Now you’ll still owe $20,900 but at a lower APR of 12%. Also, at the end of the year, you are usually allowed to write-off the interest you paid, effectively making your APR even lower. Most equity loans are 15 year notes, so try to send in extra principal every month to accelerate that payoff time. Make sure your bank allows pre payment and extra principal payments. Online sites usually have lower rates than banks. Now you are paying one check every month to pay off your credit card debt.
But supposing you only have $7500 equity in your house. How can you consolidate all your debt with $7500? You can’t, you’ll have to choose which accounts to payoff. The department store and gas card have the highest APR, so shoot for those. You’ll need to borrow $6900 with your equity loan. There is no reason to borrow more, and you should not either. Sure you would like to buy down some of the interest with your equity, but if you don’t have enough to pay it off and close the account, then there is a very high risk that you’ll just run the balance back up again. Some accounts you can close, then just continue to pay them off, then you’re OK using the remainder of your equity balance to buy down whatever you can on the balance. But we cannot stress the importance enough that you must not let your balances go back up. Consolidation loans and equity loans are potentially dangerous in the wrong hands because you are adding another channel of credit, so use it wisely, and always be fully aware of what you are doing.Car Title Loans
Car title loans are loans with your car title as collateral, but the interest rate can be over 200%! Our stupid lawmakers keep voting down legislation against this high interest because industry lobbyists are very influential. The lawmakers claim that passing legislation mandating a lower APR would put the title loan companies out of business. Well gee professor, how do banks survive lending people money at only 18%? Title lenders reel you in promising quick cash telling you your cash problems are going away, but they are actually just beginning. Many people don’t realize how insanely high the interest is and cannot maintain the payments. The type of person that signs up to a title loan is a fool, because if they are so strapped for cash that they’ll fork over their title for cash, where do they think they are going to get the cash to pay back this ultra high APR loan? Many people default after the first month and their car is repossessed. It’s a legalized way for the lenders to steal your car.
WARNING: This is the riskiest type of loan and is designed to steal your car! Don’t do it!