Taking loans to get rid of other loans may sound strange. But getting the cost down on existing loans without taking any new ones actually makes you get rid of the debt faster as long as you continue to pay off at the same rate.
Many people who have existing loans and credit experience that they never manage to get rid of these debts, even though they pay off every month. This may be due to the fact that the payments you make consist entirely or to a large extent of interest expenses. In fact, this means that you pay very little or not at all on the loan or credits. This may end with the fact that it takes several years to pay off the entire debt even if it is a minor debt. In the end, you may have paid interest expenses that are several times the amount of the loan itself. Read more about interest and what it is here.
At Rosalind, hard earned money that is thrown away completely unnecessarily. It can be thousands and tens of thousands of dollars that you can certainly find much more fun with than throwing away on expensive loans and credits.
How to avoid taking smaller loans and credits
If you shop on invoice online or if you maybe bought furniture and electronics on installment, it is common to draw on this type of endless loans and credits. Credit cards are another such trap. These types of smaller loans usually have high effective interest rates of at least 10% and more. It is not uncommon for you to have an effective interest rate of around 30% and more when you, for example, trade travel, furniture, clothing and so on online on invoice.
Often when the invoice comes on this kind of loan and credit, one is offered to pay the least possible payment or perhaps even to skip a payment. If you do so, it only means that it takes longer to get rid of the loan and that you ultimately pay more in interest and fees.
So how to get rid of this type of loan and credit?
The best option is of course to take the bang and solve everything. But if you do not have the money for it, you can take a loan to collect everything.
In the first instance, we recommend that you increase your mortgage if you have one. If you do not have the space to increase your mortgage or simply do not have a mortgage loan, we recommend that you take a private loan corresponding to the total debt you have to solve all these loans and credits. The goal of this is to merge everything into one loan and bring down the interest expense so that a larger proportion of the payments made will continue to be used to actually repay the loan itself.
So the next time the invoices come in, pay attention to what you pay in interest on the existing loans.
Calculate the average rate you pay on existing loans and credits as shown below:
Say you have three different loans of SEK 15,000, SEK 25,000 and SEK 20,000 – that is, a total of SEK 60,000. Say that interest rates are 10%, 20% and 30% respectively (keep in mind that it is effective interest rates you have to count on and not nominal interest rates. In the case of effective interest rates, fees are also included and that is the real interest rate.)
It gives you an average yield of (15,000 x 0.1 + 25,000 x 0.2 + 20,000 x 0.3) / 60,000 = 20.8%.
So you manage to find a private loan that covers the total debt of SEK 60,000 with an interest rate of less than 20.8% on the maximum maturity of the smaller loans, so it is better than what you have today.
An average interest rate of 20.8% over 4 years on a debt of SEK 60,000 means that you pay a total of 26,234 in interest expenses.
If you managed to find a private loan of SEK 60,000 to merge everything into one loan and with an interest rate of 8%, you would instead pay a total of SEK 9,904 in interest. In other words, you would not have to pay SEK 16,330 in unnecessary interest costs! For many people, this corresponds to a full monthly salary after tax.
Be afraid of your money. The next time it’s time to pay bills take the time to review your loans and credits and collect them one. It’s worth it. Please help us to collect loans and credits . Either you can call and talk to us or send in a loan application directly via our website.