Debt Consolidation

Setting a Timeline to Pay Off Your Debt

Once you have determined which type of debt consolidation loan is right for you, you need to create a time frame in which to pay down your debt.

First, think about your financial goals. Where do you want to be financially in a year, in five years, even 50 years? Start with some short-term goals that cover the next few years. After assessing all of the debt obligations that you have, when can you reasonably expect to pay it off? How much can you afford to pay each month? Instead of having the debt hanging over your head, make a goal to pay off the debt as quickly as you can. So if you can afford paying off your debt with a 10-year home equity loan, don’t get a 15-year loan because that will only prolong paying it off and cost you more money.

For example, let’s say you have $15,000 in credit card debt. You have the option of a 10-year home equity loan at 7 percent, or a 15-year home equity loan, also at 7 percent:

10-Year Home Equity Loan vs. 15-Year Home Equity Loan
10 year loan 15 year loan
Monthly payment $174.16 $134.82
Total cost over life of loan $20,900 $24,268


Paying off your loan five years sooner will save you more than $3,000. To determine how much money you can save with a debt consolidation loan use our debt consolidation loan calculator. All you will need to know if your loan balances, monthly payment, and consolidation loan term.

Using a Line of Credit

Setting a timeline is even more critical if you’re paying off your debt with a line of credit, such as a home equity line of credit (HELOC). This is because HELOCs allow you to pay only the interest, rather than the loan principal. While this keeps your monthly payment low, it does nothing to actually pay off your debt. When money is tight you may be tempted to pay only the minimum or less than what you’ve committed to. Realize that each time you do that, you extend your timeline to pay off your debt.

For example, say you consolidate $15,000 in debt on a home equity line with a 7.5 percent interest rate. If you choose to pay $200 a month toward your debt, you will pay it off in 8 years and 6 months. But if you increase your payments to $300 a month, it will take you just 5 years and 1 month.

Stick With It and Track Your Progress

The trick to paying off debt is to stick with it. This is why a debt consolidation loan with a fixed payment every month helps. But you also need to watch your spending so you don’t create more debt.

Set aside time on your calendar every six months to track your progress. Start with measuring all your debt again. Is this where you had expected to be? If you’re ahead of your plan, congratulations. That should give you an incentive to keep it up.

If you haven’t paid off as much debt as you’d expect, where are you falling short? Are you adding new debt? Or are you not paying off your debt consolidation loan as quickly as you’d planned? Figure out what’s causing you to fall behind and reassess your budget to focus on that area.

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Remember that cutting back on spending will help. It will either curtail new debt that you’re creating or allow you to accelerate paying off the loan in which you consolidated your debt. At the end of the day, living without debt means living within your means.


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