Understanding Debt Consolidation
The basic idea behind debt consolidation is that a borrower can combine multiple debts into one payment. The strategy can help to both simplify their monthly finances and make it easier to understand how debt repayment fits into their budget.
Most debt consolidation loans have a fixed interest rate, which means a borrowers monthly payments are always the same. To save money in the long run, borrowers would ideally find a debt consolidation loan with a lower interest rate than the average of their existing debts. That way you pay less in interest over the life of the loan.
For example, say you have three credit card accounts with the following balances and annual percentage rates (APRs). APR is a measur…
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