Harrison Funding and Johnson Funding may be running a debt consolidation scam according to multiple personal finance sites. Harrison Funding has begun flooding the market with personal loan, debt consolidation and credit card relief offers in the mail with the website My Harrison Funding. The problem is that the terms and conditions are at the very least confusing, and possibly even suspect.
The interest rates are so low that you would have to have near-perfect credit to be approved for one of their offers. Best 2020 Reviews, the personal finance review site, has done a review of Harrison Funding & a review of Johnson Funding, Taft Financial, Georgetown Funding, Credit9 and others.
We all know how difficult it can be to pay off multiple debts at one time. The stress of dealing with different debt providers and incoming bills can feel suffocating. If you’re stuck in this place, it may be time to consider debt consolidation. It will bring together all your debts and can make payments a lot easier.
This blog covers everything you need to know about debt consolidation, including how it works and whether it would be a good decision for you.
Let’s start by understanding what debt consolidation is.
Defining Debt Consolidation
It is exactly what it sounds like. It’s a way for you to combine all your different debts into one plan. You take out a loan and use it to pay off all your current debts together in one go. Once done, you will only owe money to a single lender.
When conducted properly, debt consolidation has the following benefits:
- It reduces the interest rate on your debt, therefore reducing the total amount of money you have to repay.
- It boils down all your payments to a single, monthly transaction to streamline your finances.
Various forms of debt can be consolidated. Credit card consolidation is the most common. Some other ones are payday loans, student loans, store cards and personal loans.
How Does it Work?
The best way to understand debt consolidation is through an example. Let’s consider Alice has three different debts that she owes to various people.
- $500 payday loan, with an APR of 1000%
- $2,000 outstanding on her credit card, with an APR of 25%
- $1,500 outstanding on her store card, with an APR of 30%
*APR= Annual Percentage Rate
Alice has $3,000 in outstanding debts with a weighted interest rate of approximately 50%. (Weighted interest rates are used to consider the relative size of individual loans).
So, by taking out a bigger loan of $4,000, Alice can pay off the previous three creditors. She will now owe money to a single entity . Moreover, chances are that she’ll obtain an APR lower than 50%, which means she will also be repaying a lower amount overall.
Sounds simple enough, right? But, there are some other elements of debt consolidation that you should know beforehand.
When is it Advisable to Go for Debt Consolidation?
You need to ask yourself two major questions before applying for debt consolidation.
1. Can it Save Me Money?
A good debt consolidation loan should allow you a lower APR, but there are two other factors to keep in consideration as well.
If the loan is for a longer period, that might result in you repaying more despite the lower interest rate. So, if you’ve borrowed $100 at an APR of 20% for 12 months, you will need to repay $120.
However, if you borrow $100 at a 3% rate for ten years, you’ll be repaying $130. Despite the lower repayments each month, you will end up dishing out more cash in the long run.
This is a simplified example, though; lowered interest rates usually are quite beneficial. Moreover, you may find it easier to make the repayments over several years based on your living circumstances. Just make sure you consider all the pros and cons before deciding upon a payment period.
You can use online loan calculators or even ask your loan provider to help you estimate the total amount you’ll be repaying.
2. Will I Be Able to Make Monthly Repayments?
This is a critical question that you need to be sure of before getting a debt consolidation loan. It is important to ensure you can afford the repayments each month; otherwise, you will be stuck with a terrible credit score.
Most responsible lenders do their part to help by carrying out affordability checks and examining your credit scores. However, it is best to analyze your monetary standing yourself, too, especially if you’re expecting a big event or life change sometime soon. Perhaps you have a child on the way or need to relocate for work?
Be transparent with your loan provider about your lifestyle and any predicted changes. It is the best way to get a loan that will serve you well.
Paying off Credit Debt with Debt Consolidation
Credit card debt is no cheap feat. Hence, many people take out a personal loan with lower interest rates to pay off their credit balance. This also allows them to pay reduced monthly payments alongside.
In most cases, your credit interest rate starts quite low but builds up over time as you borrow more money. It can get particularly high if you aren’t able to pay the minimum monthly amounts.
Paying Off Personal Loans with Debt Consolidation
Another way to use debt consolidation is to pay off personal loans. It allows you to tailor your loan exactly how you need it, as most lenders will let you decide the amount of the loan and the time period to pay it off.
So, just set up a loan plan that meets your requirements. With the locked-in interest rate, you won’t have to worry about the debt getting out of hand.
Additional Fee and Charges
The last factor to consider is the additional fees that some debt providers charge. They come in many different forms and labels. If you have a mortgage, you must have paid a broker fee and an arrangement charge.
Likewise, here are some other fees to look out for.
- Early repayment charges
- Loan fee
- Balance transfer fee
Is it Time to Consolidate Your Debt?
That completely depends on your financial situation and how well you can manage the monthly repayments. For many debtors, debt consolidation is a great way to organize their money and avoid higher interest rates.
On the other hand, if you can’t afford to make the monthly repayments, you will end up with a poor credit score. This will reduce your chances of qualifying for other loans in the future and make it quite difficult to get a mortgage.