Debt Consolidation
Debt consolidation is the strategic process of merging multiple debts into a single loan, typically with a lower interest rate. This approach enhances financial management by simplifying payments and potentially reducing overall debt costs.
WHY DEBT CONSOLIDATION?
By consolidating your debts, you can streamline payments, reduce overall costs, and alleviate the stress associated with managing multiple obligations. Let’s explore the key benefits of debt consolidation and how it can help you achieve greater financial stability.
Simplified Payments
Consolidation merges multiple debts into a single loan, reducing the number of payments you need to track each month. This can help you stay organized and avoid missed payments.
Lower Interest Rates
By consolidating, you may secure a loan with a lower interest rate compared to your existing debts, which can lead to significant savings over time.
Improved Cash Flow
Lower monthly payments can free up cash for other essential expenses, allowing you to manage your budget more effectively.
HOW DOES DEBT CONSO WORKS?
John has RM45,000 in debt from two credit cards and a personal loan:
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Credit Card #1: RM15,000 at 18% interest
Minimum payment = 5% of RM15,000 = RM750 -
Credit Card #2: RM10,000 at 18% interest
Minimum payment = 5% of RM10,000 = RM500 -
Personal Loan: RM20,000 at 12% interest
Monthly payment (fixed over 5 years) = RM444
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Total Monthly Payments:
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RM750 (Credit Card #1) + RM500 (Credit Card #2) + RM444 (Personal Loan) = RM1,694/month
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Debt Consolidation:
By consolidating this debt into one loan of RM50,000 (RM45,000 debt + RM5,000 extra cash) at a 10% interest rate over 5 years, John’s new monthly payment would be approximately RM1,062. This reduces his total monthly payment, gives him RM5,000 extra cash, and simplifies his finances with one manageable payment.
