Interest Rate and Debt Consolidation
Many people do not understand how interest rates work with a
loan, never mind a debt consolidation. A debt consolidation is a
simple loan that will take all of your debts and compile them
into one. You take all of your credit cards and add them up and
get a loan for that amount of money. Then you use that money to
pay them all off, and spend the next two to four years paying
off the debt consolidation loan. If you are smart and get rid of
your credit cards after you have paid them off, you are now
looking at a debt free existence.
But how does that interest rate work? The interest rate that you
get is based on the federal interest rate which is set by the
Federal Reserve Chairman. How much you pay is based on that rate
plus other factors like credit score and loan limit. Sometimes
even loan amount can determine the rate as you might get a
higher rate for a smaller loan amount – and a lower rate for a
higher amount of money. The company that you go through for your
debt consolidation will set the rate and then charge you
accordingly. Some debt consolidation companies will charge more
than others because they are trying to make more money off of
you.
The lower the federal interest rate the lower your rate will be
as well. Therefore the converse is true as well, the higher the
rate the more you pay. If you are smart you will lock in your
debt consolidation rate when it is low so that you don’t have to
worry about the higher rates.
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