In my practice, I sometimes meet people who have multiple loans and also expensive and inappropriately set. They destroy their high repayments and pay unnecessarily high interest.
Banks may be happy with this situation, but it is not glory for people. Therefore, I recommend, if possible, get rid of expensive loans and exchange them as cheaply as possible and pay them off.
How does a consolidation loan work?
Consolidation loan at this website link can bring not only lower monthly payments but also lower interest payments. When you consolidate multiple loans, you get the most. How much can consolidation loan bring you?
The ideal situation is not to have any loans. I also personally prefer to talk about investing, creating financial reserves, and evaluating them as interviews on loan cleaning.
But sometimes it just doesn’t work right away and it is first necessary to clean up the family budget and best start with expensive loans. It is these that make up the biggest holes in the family budget, and credit consolidation can easily clean them up.
How credit consolidation looks like in practice
I chose a specific example for my client, where we consolidated several loans – 1 mortgage, 2 consumer loans and 1 credit card.
What was the reason for consolidation
- High monthly loan repayments.
- High interest on loans.
- High-interest repayment.
This is an overview of all the loans we have paid off
The total loan balance was almost € 95,000, the weighted average interest rate was 4.50% pa and the monthly installment was € 767.06.
Why am I writing in the past? All these loans have been combined into one and now everything is different.
This is the result of credit consolidation
We have combined all loans into one with a lower interest rate and a lower installment. These are the parameters of a new loan (mortgage) after consolidation.
What did credit consolidation bring to this client?
- Reduction of the monthly payment by € 412.54.
- Interest reduction of 3.05%.
- Possibility of shortening the mortgage by 15 years, provided that it will be a part of the money from what it saves to invest.
We have extended the mortgage for 27 years, which is exactly the time to maturity of the original mortgage. The client uses a part of the savings on a monthly installment to save money by repaying the mortgage by early repayments while also creating financial reserves.
If it is investing e.g. 300 € per month, so when evaluating 5% pa in 12 years will have enough money to pay off the entire mortgage prematurely. The 12th mortgage balance will be € 57,319 and the pre-tax investment value will be over € 59,000 at € 300 a month and 5% per annum.
You may be wondering where 5% pa can be earned today? It’s not in bank accounts. Such appreciation may result in a regular investment in mutual funds that is well set up and with well-chosen mutual funds. This is the case, for example. looks at the Rytmus investment account from Pioneer Investments.
There are quite a few options for investing. This is just one of them.
If you have multiple expensive loans, step no. 1 is their consolidation. After reducing your monthly payment, you can invest some of your monthly savings. Choosing the right investment is step no. 2 and is equally important.
Either do it yourself or you can reach your financial intermediary. It’s up to you.