The world has experienced a massive disruption and the uncertainty has left many Americans thinking about losing their jobs and income. One of the most common dilemmas faced by millions is how to fulfill their payment obligations. But what many probably don’t know is that there is a bright side to this. Qualifying for debt consolidation loans may be cheaper for borrowers.
Debt consolidation loans are just like personal loans. The difference is you can use debt consolidation loans to pay for credit card debt. If you have three active credit cards and you owe money on all of them, taking out a debt consolidation loan means you only make one monthly payment to your loan provider instead of three separate payments to the credit card companies. Usually, the debt consolidation loan is also offered at a lower interest rate.
The silver lining with a crisis is that interest rates for loans will be drastically reduced. In 2020, The Federal Reserve decided to cut down interest rates by 1.5 percentage points due to the COVID-19 situation. This means that the Federal Reserve’s target rate is brought down to almost zero. A first since the 2007-2008 financial crisis.
The federal funds rate is what banks use when they lend money to another bank. If the federal rate is reduced, banks may decide to share some of their savings with borrowers by giving lower rates. So how low will loan rates fall?
Well, it’s not easy to point out. In 2008 after the Federal Reserve cut its rates by 1.5 points, the average interest rates for personal loans went down by 0.43 points. Personal loan rates were reaching 2 percentage points. In 2019, the average rate for personal loans was 10.2%. If we use history as a guide, interest rates can go down to 8.4 to 9.7%. Waiting for interest rates to go down can give you hundreds of dollars in savings on your monthly payments.
Many top American banks announced their plans in helping their customers who are dealing with credit card problems. Options offered to include reduced interest rates and postponed payments or forbearance. One reminder regarding forbearance is that your balance will still continue to accrue interest.
Bank of America, Ally Bank, Chase, Capital One, Wells Fargo, and US Bank are just some of the major banks providing to customers dealing with financial difficulties during the crisis. Citi meanwhile, has encouraged credit card customers to review the always-on assistance programs. Assistance programs include collection forbearance and credit line increase.
The past years have been challenging for a lot of people. But it doesn’t mean that you just have to settle with what you’re served. If you believe debts will be a major problem, then it’s better to start your preparations now.
