A Better Way to Manage Your Everyday Money - Book - Page 227
Debt consolidation loan
A debt consolidation loan combines all of your debts into one loan with a single monthly
payment which may be lower than the combined total of your current debt payments. In addition,
the interest on a consolidation loan may be less than what you are now paying. As of October
2024, the average rate for a personal loan is 12.41% while the average APR (Annual Percentage
Rate) for credit cards is 20.55%.
The appeal of a consolidation loan is that your monthly payments are reduced thereby making
more cash available to spend and more room on your credit cards to spend even more. That’s the
risk. A consolidation loan, instead of solving your debt dilemma, can result in even more debt
unless you approach getting a consolidation loan with a plan which in PerNetFlow means:
● Depositing the full amount of the money from the consolidation loan in your cashflow
spaces’s checking account.
● Entering the deposit of the loan proceeds as an Other deposit.
● Adding the consolidation loan to your spreadsheet as a bill that will last the number of
consolidation loan payments.
● Changing the next payments to all of the consolidated debts in your spreadsheet to one
final, pay-off payment. (The pay-off payments absorb the uptick in your net cashflow
caused by the deposit of the loan proceeds. The net result of integrating a consolidation
loan into your net cashflow is the increase caused by the replacement of all the
consolidated debt payments with the one, possibly lower consolidation loan payment.)
● Using the four-step method to manage all future credit card usage.
Getting a consolidation loan can be difficult. Just applying for one may damage your credit
because of the intense extra scrutiny that is put on your credit history.
Before jumping on the consolidation loan bandwagon, you might take a look at the options you
have in PerNetFlow for creating your own custom debt payoff plans. Getting out of debt with
your own pay-off plan may take longer, but will have a positive effect on your credit rating.
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