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Consumer Preference for a Debt SolutionDebt consolidation can lower a consumer's total interest charges and their monthly payments. Consumers often do not benefit from both lower interest rates and payments with debt consolidation because one benefit negates the other. Extending your debt over a long period of time can cost you money. Debt consolidation pays off all high-interest debts with an affordable loan. When consumers obtain a debt consolidation loan, they can select to pay either less total interest or smaller monthly payments. Consumers must decide between lower monthly payments or reduced interest charges when they choose debt consolidation. For example, a married couple holding $10,000 in total credit card debt with a 15 percent interest rate wants to lower their high interest rate, so they consolidate their debts with a loan. If the couple wanted to maximize their savings with debt consolidation, they would select a loan yielding a small amount of total interest. They can obtain a five-year loan at 8 percent interest and pay off the debt. With this loan, the couple pays $202.76 per month, incurring $2,165.84 in total interest throughout the life of the loan. If the couple wanted to reduce their monthly payments, however, they would pay more total interest, even if they received a lower rate. For example, if they obtain a 10-year loan with a 7 percent interest rate to finance debt consolidation, they reduce their monthly payments to $116.11. However, they pay nearly $4,000 in total interest on the 10-year loan, despite receiving a lower interest rate. Consumers sometimes pursue debt consolidation to decrease their monthly payments, despite incurring higher costs over the life of the loan. This situation often occurs when the consumer cannot afford large monthly bills carried on most credit cards. The consumer must decide either to save each month, but pay more on the loan, or to pay more monthly payments or total interest costs involves the consumer's preference. About the Author
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