more detail information about credit management at our
affiliated site: SayPlanning.com
Is this the right option for
you:
this may be an ideal option if your budget allows
for an extra amount to be used to quickly payoff your
loans.
You may consider consolidating your existing loans
under a lower rate and budgeting the same amount to
payoff your consolidation loan: See
Option 2: Consolidate Your Loan.
First thing: analyze your budget:
analyze your monthly budget to determine how much
money you can allocate for this payoff plan.
Link to our budget planning at SayPlanning.com: click
here
Let's illustrate this listing by using the following
loan balances with a period of 5 years before the
final loan is paid (assuming no additional debt):
Balance
Payment
Rate
Loan1
$800
$32
12.5%
Loan2
$1200
$40
12.5%
Loan3
$2777
$67
12.5%
Loan4
$8530
$175
8.00%
Loan5
$18997
$453
6.75%
Group your loans: group at least 2 low-balance
loans together and set a plan to pay them off within
6-12 months.
(You may use a credit card transfer program to get
the low transfer interest rate during your payoff
period).
Once you payoff these two loans, group the next low-balance
loan and pay it off quickly over 12-24 months.
Why loan grouping:
payoff grouping builds a momentum where you erase
1-2 loans quickly from your monthly payment plan.
The savings can then be applied to other monthly loan
payments to reduce your total loan balances quickly.
Example:
Take the first two loans from the example above (Loan1
and Loan2) and group them together.
Set a budgeted payoff plan for 9 months:
— your payoff balance: $2000
— your payoff interest rate (assuming 12.5%)
Payoff and group again: once you have successfully paid
off the two loans in 9 months, your current loan portfolio
will look like this (assuming no additional debt and
regular paydown on your other loans):
Balance
Payment
Rate
Loan1
$0
$0
12.5%
Loan2
$0
$0
12.5%
Loan3
$2372
$67
12.5%
Loan4
$7308
$175
8.00%
Loan5
$15450
$453
6.75%
Now take the next loan and apply the same payoff proceeds
to this loan:
— your payoff balance: $2372
— monthly payoff amount: $301
— time needed to payoff: 8.3 months
The monthly payoff amount $301 equals the $234 that
is now available in your budget after paying off the
two loans plus the $67 current monthly payment.
Now after 9 months, you current loan portfolio should
look like this (assuming no additional debt and regular
paydown on your other loans):
Balance
Payment
Rate
Loan1
$0
$0
12.5%
Loan2
$0
$0
12.5%
Loan3
$0
$0
12.5%
Loan4
$6004
$175
8.00%
Loan5
$11698
$453
6.75%
Continue payoff:
continue your group payoff by taking the next loan
and applying the same payoff proceeds:
— your payoff balance: $6004
— monthly payoff amount: $476 ($301from
above +$175).
— time needed to payoff: 13.2 months
After 13 months, your current loan balance will look
like this (assuming no additional debt and regular
paydown on your other loans):
Balance
Payment
Rate
Loan1
$0
$0
12.5%
Loan2
$0
$0
12.5%
Loan3
$0
$0
12.5%
Loan4
$0
$0
8.00%
Loan5
$6079
$453
6.75%
apply the same payoff proceeds to payoff your last
loan:
— your payoff balance: $6079
— monthly payoff amount: $929
— time needed to payoff: 6.9 months
Summary: by grouping low-balance loans together
and budgeting an additional $162 for debt payoff,
you were able to eliminate this debt within 3 years.
That is two years less than allowing these loans to
run their term.
The magic of grouping is that it eliminates low balance
loans quickly so that you have the motivation and
additional funds to pay down your next loans.
You can achieve similar payoff time if you allocated
an additional $162 each month to pay down a consolidation
loan. See example under Option 2.
Grouping works best when you develop a spending plan
that meets your budgeted allowance for living and
debt payoff.
The advantage of grouping over
consolidation is that you reduce your allocated
payment in times of financial distress. The
disadvantage of grouping over consolidation
is the discipline to maintain your payout amount.
See our topic on budget planning at our parent site
SayPlanning.com: click
here
Lower your other living expenses:
review our section on lowering your monthly bills
in housing, transporation, living, recreation, and
more.
Option
#2: Combine All Your Loan Balances in a Consolidated
Loan
more detail information about credit management at our
affiliated site: SayPlanning.com
Is this the right option for
you:
this may be an ideal option if you can consolidate
your loans under a repayment plan that offers an interest
rate that is lower than the weighted interest rate
charges on your existing loans.
Estimate your weighted interest rate:
Consolidation example:
Let's assume that you had the following loans (from
the list generated under Option 1) that will take
5 years before the last loan has been paid off.
If you consolidated the following loans under a consolidation
loan rate of 7.00% with a 10-year repayment plan,
you would save around $392 each month over current
payments.
These savings can be applied as an extra amount each
month to pay down your consolidation loan within 4
years — 1 year earlier if you didn't consolidate.
If you budgeted an additional $162 as illustrated
under Option 1 above, you will be
able to eliminate this debt within 3 years.
Balance
Payment
Rate
Loan1
$800
$32
12.5%
Loan2
$1200
$40
12.5%
Loan3
$2777
$67
12.5%
Loan4
$8530
$175
8.00%
Loan5
$18997
$453
6.75%
Total
$32,304
$767
Consolidation
Loan
Total
$32,304
$375.08
7.00%
Extra1
($767-$375)
$392.00
Extra2
(budgeted
amt)
$162.00
Payoff
38
months
What type of consolidation loan:
Your best option for consolidating loan debt is with
a home equity fixed-rate loan:
— interest rates are around 2-3 points above
the prime rate
— payoff terms range from 5-20 years
— you can pre-pay your home equity loan balance
— interest rate charges may qualify for tax
deduction
We have a complete section on home equity consolidation
including terms, product features and a network of
local lenders to negotiate the best rate:
Another option is an unsecured debt consolidation
loan. Your debt consolidation firm will work with
you creditors to lower your monthly repayment term.
Some restrictions will apply:
more detail information about credit management at our
affiliated site: SayPlanning.com
Is this the right option for
you:
use this option if you find yourself unable to repay
your current debt balances and want to avoid bankruptcy.
This may be the right option if circumstances such
as unemployment, loss of income, or other unfortunate
event prevent you from repaying your debts.
This option is also recommended if you have collection
agencies threathening action. Counseling services
can advice and protect you from adverse action.
Credit counseling services:
credit counselors will be able to discuss your situation
with your debt lenders to either forgive the debt
or structure a repayment plan that fits your budget.
They will also work with you to establish a budget
that fits your current situation.
How the program works:
you first complete an enrollment form that authorizes
the credit counselor to discuss your situation.
the credit counselor will contact your creditors to
negotiate a repayment plan that is significantly less
than your current payment — why? creditors will
welcome partial payment rather than no payment.
credit counselors will then setup a monthly repayment
plan that works for you
you will then make your monthly payments to the credit
counselor who in turns divides the payment among the
creditors based on the negotiated repayment amount
Find credit counseling services:
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We can help.
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