Part 2 of Big Fat Lies in the Debt Relief Industry

5-Part Mini-course: Lesson 2

Debt Consolidation Loans: Do They Really Add Up?

Dear (First Name),

In part one of this mini-course, we discussed the most tempting of debt relief alternatives. Today, we are going to discuss the most commonly used form of debt help, the debt consolidation loan. Most of us know what they are, but few know that they actually cost consumers hundreds of thousands in interest. I am going to illustrate a real example shared by one of our Got Guts members to see just how misleading they can be. But first, let’s go over the basics of a debt consolidation loan.

A debt consolidation loan is simply a larger loan that combines all or most of your debts into one monthly payment. (The bait here is one monthly payment.) The new loan is typically amortized over a longer period, which in return reduces your overall monthly payments. As an added deceptive bonus, the new loan is usually at a lower rate than at least one or two or your existing credit cards. However, the actual amount in interest you will pay has secretly doubled or even tripled. Let’s look at a real example and see for ourselves.

Note: This is a real life example that I was given permission to share with my readers. For privacy reasons, I have changed the names, but the dollar amounts remain the same.

John and Mary received an offer in the mail to refinance their mini-van at a lower interest rate. The offer was from a well known national financing company, so John and Mary made an appointment to find out more. At their appointment, they did in fact qualify for a lower rate on their auto loan, which was exciting news since money was tight at the time.

Next, the loan officer told John and Mary that they were pre-approved for a debt consolidation loan that would not only refinance their auto loan, but all of their outstanding debts as well. This loan would save them over $500 a month in monthly payments. As you can imagine, John and Mary were definitely interested in saving $500 a month. Below is a list of their debts, interest rates, and payments.

Creditor’s Name Balance APR Payment
Capital One $6,345.00 11.30% $347.00
Well’s Fargo $12,000.00 4.30% $75.00
Bank One $800.00 24.00% $35.00
Lowe’s Card $2,300.00 18.00% $75.00
HSBC Auto $7,500.00 15.10% $145.00
American Express $3,250.00 15.40% $100.00
Mortgage $124,000.00 6.90% $851.29
Second Mortgage $30,000.00 12.00% $480.00

$186,195.00 $2,108.29

As you can see John and Mary are the typical family. They have a mortgage, auto loan, and credit cards, all of which stake a claim on their paychecks. Their debts total $186,195 with their monthly payments totaling $2,108.29. Their new debt consolidation loan will combine all these debts into one with an interest rate of 10.3%. Their monthly payment will now be $1,661.16 a savings of $447.13. Sounds pretty good, right? Let’s take a closer look at these numbers and see if this new loan really does save them money.

First, let’s take a look at John and Mary’s current financial picture. To do this, we need to calculate how much interest they will pay on their current debts. The following is a summary of their financial situation. Note: All interest values assume only the minimum monthly payments were made.

Their debts total $186,195.00

Their combined payments are $2,108.29 a month.

They will pay $170,730.61 in interest in addition to the $186,195 they owe.

It will take them 26 years to pay off all their debts.

So we can see that John and Mary are going to pay $170,730.61 in interest over the next 26 years to pay off all their current debts. This is a pretty lofty price tag, but is it higher than the new loan? Let’s put it to the same test.

Their consolidation loan totals $186,195.00

Their monthly payment is now $1,661.16 a month.

They will now pay $411,828.02 in interest in addition to the $186,195 they owe.

It will take them 30 years to pay off their loan.

Are you shocked? Even though the monthly payment was less, the new loan ends up costing a lot more – $241,097.41 more to be exact. The friendly and deceptive financial company took John and Mary’s debts and stretched them out over a longer time frame while secretly increasing their income and profit on the loan. Surely you didn’t think they wanted to save you money at the expense of their bottom line?

Let’s take one more look at John and Mary’s finances. We put the same debts, the same interest rates, and the same minimum payments into the Got Guts Wealth Builder Pro program.

Their debts total $186,195.00

They are still paying $2,108.29 a month to their creditors.

With a PLAN they will only pay $85,882.13 in interest.

They will save $84,848.47 in interest

They will be DEBT FREE in just 10 years and 10 months compared to 26 years.

If they save their monthly payments after they become debt free, their savings will grow to $1,369,026.91 in the next 30 years.

Note: Savings calucualtions assumes a monthly savings rate of $2,108.29 for 19 years and 2 months with an annualized return on investment of 10%.

By following their personalized step-by-step plan, John and Mary will be debt free in 10 years and only pay $85,882.13 in interest, while still only making the minimum monthly payments. That’s a savings of $84,848.47. Not only will they be debt free in a third of the time and save over 50% in interest, but by saving their monthly payments they will be a millionaire in the time it would have previously taken them to become debt free. Now that’s impressive. What a difference a plan can make.

One final note about debt consolidation loans; not only do these loans cost more in interest, but over time, the individual will usually take on more debt and monthly payments. Debt consolidation loans are not a real solution. They are a quick fix instilling millions of people with false hope. An effective and honest solution is a proven debt free plan backed by mentoring and a total self empowerment.

Next time, we will place Credit Counseling under the microscope.

Sincerely,
Daniel Meek
Creator of the Got Guts Wealth Building System
www.Got-Guts.com