Debt Consolidation

Of all the threats to your financial security, none is more dangerous than debt. If you’re nearing a crisis point and your debt payments are consuming your disposable income, consider a debt consolidation loan referred through Primerica.

Avoid the Revolving Consumer Debt Trap

If you're only paying the minimum on your credit card debts each month, you may not be making any impact on the balance. The reason?

Most credit card debt is considered “revolving” debt.
Because of the way the interest is calculated in revolving debt, it's difficult to tell how long it's going to take you to pay off the balance. With fixed debt, payments are scheduled for a fixed amount of time (like a car loan). You can easily tell when you will pay off the principal on the
debt and — even with the same interest rate and monthly payments — your pay-off date is usually much sooner than with revolving debt.

This chart can help illustrate the difference:

Which would you rather have? Revolving Debt1 Fixed Debt
Amount borrowed: $17,000 @ 15% COB $17,000 @ 15% COB
Monthly payment: Starts at $382.50/month2 Fixed payment of $382.50/month3
Years to payoff: 32 years, 4 months 5 years, 6 months
Interest paid: $20,700 $8,000
Total cost: $37,700 $25,000
With revolving debt, you'd have an extra 26 years, 8 months of
debt bondage - and pay an additional $12,700!
  1. This hypothetical example is for illustrative purposes only.
  2. Assumes revolving payment (minimum) is 2.25% of the remaining balance or $15, whichever is greater. First month's payment is shown and term assumes continued payment of minimum amount. No additional debt incurred and payments decrease over time period.
  3. Assumes payment of 2.25% of initial loan amount, no additional debt incurred and initial payment amount remains fixed throughout term of loan. Each debt situation will vary. The amounts borrowed, amounts of interest paid and total costs illustrated above were rounded to the nearest $100.

What is a debt consolidation loan?

With a debt consolidation loan, the lender pays off your creditors and combines all the balance amounts into one loan with one fixed payment. Once you’ve consolidated, you’ll usually begin to make lower monthly payments. You can then apply the extra money you’ve made available toward your debt freedom and retirement saving.

The Debt Solution

1st Mortgage
$156,801 at $1,1571
(for 15 more years)
Personal Debt
$50,000@1,4102

Total Monthly Payments= $2,567
Refinanced $210,601 for 25 years at $1,051 per month1 at age 33
Makes available $1,516 a month3
1st Mortgage
Invest $758 a month at 9% for 12 years = $195,3454
Add $758 a month toward payment of additional principal

$195,345 invested/home and all debt paid off in 12 years
Take the $195,345 lump sum and invest with the $2,567
now available each month until age 65
The total, given a 9% return = $2.89 million4


1 The above monthly payment does not include taxes and insurance. 2 Based on the assumption that the present payment program continues on two open-end credit card accounts with balances of $5,000 and $25,000 respectively, with cost of borrowing (COB) of 19% and 29% respectively, with monthly payments of $180 and $750 respectively and one fixed personal loan with a balance of $20,000, monthly payment of $480, COB of 7% and original term of 48 months. 3 The above monthly payment does not include taxes and insurance. The refinancing amount of $210,601 includes estimated refinancing costs and any associated penalty. This example assumes a COB of 3.5%. Assumes no additional debt is incurred. 4 The hypothetical assumes a constant nominal 9% rate of return compounded monthly, unlike actual investments, which will fluctuate in value, and does not include taxes or fees, which would reduce returns.

Develop good habits

But remember, once you consolidate your debt, it’s critical that you close your credit accounts. It’s important to develop the discipline for paying cash only, otherwise you might end up where you started.

In Canada, Primerica does not deal in mortgages. Representatives refer clients to B2B Bank for debt consolidation loans.

Please see important disclosures.