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This works out to 36.88 being paid in interest alone.If the same individual were to consolidate those credit cards into a lower-interest loan at an 11% annual rate compounded monthly, he or she would need to pay 2.16 a month for 24 months to bring the balance to zero.
Of course, borrowers must have the income and credit worthiness necessary to allow a new lender to offer them at a lower rate.
“If the principal is paid down faster [than it would have been without the loan], the balance is paid off sooner, which helps to boost your credit score,” says Freeman.
For example, say an individual with three credit cards and a total of ,000 owing at a 22.99% annual rate compounded monthly needs to pay 47.37 a month for 24 months to bring the balances to zero.
Secured loans are backed by an asset of the borrower’s, such as a house or a car, that works as collateral for the loan.
More traditional, unsecured debt consolidation loans, which are not backed by assets, can be more difficult to obtain.