Consolidation Loans

When you want to group various small debts into one loan, a consolidation loan can help.

Managing Debt

UNDERSTANDING THE TYPES OF DEBT

To begin, it’s helpful to understand the two types of debt – structured and revolving.

Structured debt is a loan you pay off over a set period of time. Your monthly payments cover the interest and a portion of the principal. With structured debt, if you keep to the fixed repayment schedule, you will eventually have a loan balance of zero.

With revolving (or unstructured) debt, such as credit cards and lines of credit, you can pay off as much of your principal balance as you wish, subject to a minimum monthly payment (if applicable). But, you may end up paying more interest over a longer period.

USING YOUR CREDIT CARD WISELY

Get rid of all but one or two credit cards. You don’t need retail store cards or gas cards, which typically charge the highest interest rates.

If you have a balance on more than one credit card, transfer the balances to the one with the a lowest interest rate, or simply pay the most you can afford each month on the card with the highest interest rate.

You are not obligated to accept the credit limit assigned to you. If the temptation to spend is too great, call your card issuer and ask customer service to have your limit lowered.

Switch from credit cards which carry an annual fee. There’s no reason to pay extra for the honour of paying high interest charges.

CHOOSING LOW-COST BORROWING OPTIONS

1.

If you’re paying high interest on your debt, such as the rate typically charged on store or credit cards, you’re throwing away your hard-earned money. Typically, on a credit card balance of $10,000, if you pay $300 per month, most of the payment is going to interest. Your principal is barely touched and, month after month, you continue to pay interest on the amount you borrowed.

2.

One option is to consider a lower interest personal loan. You could be paying roughly the same monthly amount but be debt-free in about three years. Once the loan is paid off, you can set aside the same monthly amount you were accustomed to paying but place it in one of the OPPA Credit Union’s attractive savings options to build your own nest egg.

3.

If you’ve built up some equity in your home, you might also use it to lower your debt costs. Instead of paying 18% interest on a credit card, the interest on a home equity line of credit could be as low as prime.

Or, consider getting rid of your credit cards altogether. Debit cards are as convenient as credit cards and you can withdraw cash for little or no fee.

Fully-Secured Loans and Demand Loans are also available – talk to your advisor to explore what fits you best today.

Loan Calculator

Calculate the cost of your plan to borrow money. And be sure to discuss options with an OPPA Credit Union Advisor.

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