Many Considerable Factors
You can certainly calculate a loan out longhand, but you’re likely to have errors. It’s not just the principal sum involved. Think about it critically. You’re going to have interest rates which don’t begin to apply until after the initial money has made its way from a creditor to a lessee’s account. Then there is the payback.
You’re usually going to have several stages to a modern loan. There is the initial period in which the loan is at the discretion of the lessee without any interest. When this period is up, interest begins to apply; and as the lessee pays this back, the loan may very likely be renegotiated.
Here’s the deal: you’re going to want to pay as much as you can as swiftly as you can, but an additional wrinkle in the whole pattern involves multiple debts. More often than not, you’re going to have debt from other areas than the specific loan in question. Think about credit cards, as a for-instance.
A given credit card is very much like a continuous stream of small loans which are quickly paid off—until they’re not. Now, some folks who are inexperienced in finances will get multiple credit cards and try to use one to pay off another. But eventually, they get to the “end of the line”, as it were, and the debt remains.
At that point, they’ve got a ball of money which is owed to a variety of creditors, and on which interest is continually accruing. If not paid off proactively, that interest will very soon come to dominate the initial sum, and will increase the time necessary in paying it back.
Complication In Separation
When credit card debt is taken separately from that accrued through a traditional loan, these two disparate debts can seem like insurmountable obstacles—but they’re not. And, as a matter of fact, through consolidation, it’s possible to negotiate interest down among involved creditors.
Some of the best options for consolidating student loans will include software, and the reason for this is complication: according to ConsolidateStudentLoan.com, combination is the purpose of consolidated loans: “A consolidated loan combines multiple loans into one.” This consolidation reduces complication, but requires calculation.
Calculation must be on-point, or some fee may be dropped which ends up extending the life of the debt more than it has to. So let’s take a brief hypothetical example to truly understand why software can ease the difficulties of everything.
Say you’ve got $10,000 in credit card debt, and the remains of a $20,000 loan taken out during college. Now say the initial interest on the credit card debt was 3%, and that on the college loan was 5%. Now let’s say both of those things were compounded monthly.
Altogether you’re looking at $30,000 you owe, compounded at a factor of 8% every 28 to 31 days over the course of a year. What’s more: it’s very likely creditors may change the rate of interest to suit their needs. If such a change is written into the language of the initial contract, they’ll be entirely within their legal rights to do so, even if ethics say otherwise.
The Frightening Reality
Now at 8% interest, you’re looking at an additional $2,400 a month. That’s a pretty hefty sum, all things considered. You definitely want to work out a pay regimen which knocks that down beforehand, or you’ll never get it paid off. This is why creditors can be convinced into lessening interest.
Software can additionally help make this case by projecting out the costs in time. One last advantage of software: you can get an idea of where certain financial activity will take you beforehand simply by plotting out the math in a template. This could really save you some trouble.