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Welcome, Future Early Retirees.

Having debt is hard enough as it is, but when you have multiple lines of debt, it can feel almost impossible to keep up with all the different balances, interest rates and payments due. If only there was a way to wrap all your debt into one monthly payment.

In today’s newsletter:

• What is debt consolidation?

• When is it best to use?

• Money Bags 💰 App

• Things I found interesting

• Financial Tools

What is debt consolidation?

Debt consolidation is the process of combining multiple debts into a single loan or payment, typically with the goal of simplifying repayment and potentially lowering interest costs. You essentially take out a new loan to pay off all of the old loans so now your debt is all under one monthly payment.

You can accomplish this in many ways, but the most common options include:

• Personal Loans: A type of credit where you borrow a lump sum from a bank, credit union, or online lender and repay it in fixed monthly installments over a set period, typically one to seven years. They can be used for various purposes, including debt consolidation, home renovations, or covering unexpected expenses, and can be either secured or unsecured

• Credit Card Balance Transfer: Moving existing high-interest debt from one or more credit cards to another credit card with a lower interest rate, often with a promotional 0% interest period. This can help reduce the amount of interest paid and simplify debt repayment by consolidating multiple balances into one.

• Home Equity Loan: Allows homeowners to borrow against the equity in their home, providing a lump sum that is repaid in fixed monthly payments over a set term. These loans typically have lower interest rates because they are secured by the borrower’s home, but defaulting on payments can result in foreclosure

• Cash-Out Refinance: Similar to a Home Equity Loan but instead you replace an existing mortgage with a new, larger mortgage, allowing the homeowner to take out the difference in cash. This can be used for various purposes outside of debt consolidation, such as home improvements or purchasing a second home, but it increases the total amount owed on the home and can extend the repayment period.

• 401K Loan: Allows you to borrow money from your retirement savings plan, typically up to 50% of the vested balance or $50,000, whichever is less. The loan must be repaid with interest within five years, and failure to repay can result in taxes and penalties, as the loan is treated as a distribution. Typically, you automate this so it is automatically deducted from your paycheck.

Key Takeaways:

• Debt consolidation is when you combine multiple debts into a single loan or payment.

• The most common ways people do this include:

  • Personal Loans

  • Credit Card Balance Transfer

  • Home Equity Loan

  • Cash-Out Refinance

  • 401K Loan

When is it best to use?

Debt consolidation can be a good idea if you find yourself in one of the following situations:

• You want to simplify your finances.

• You have multiple high-interest debts: Debt consolidation is often beneficial if you have several high-interest debts, especially credit card balances. By consolidating these into a single loan with a lower interest rate, you can save money on interest charges.

• You can afford the higher monthly payment of one consolidated loan.

• You have a plan to avoid future debt: Debt consolidation is most successful when combined with a plan to address underlying financial issues and avoid accumulating new debt.

If these situations apply to you, great! However, before I have you dive head first into pursuing this clever technique, consider these drawbacks:

• Upfront costs: There will likely be fees associated with taking out a new loan or transferring balances.

• Credit impact: Applying for a new loan will result in a hard credit inquiry, which can temporarily lower your credit score.

• Risk of accumulating more debt: If you don't address the root causes of your debt, you might end up with more debt after consolidation.

• Longer repayment term: While monthly payments may be lower, you might end up paying more in total interest over a longer repayment period. Be aware of how much this will cost you in total.

Understanding all the costs and terms of a new loan is critical before moving forward. For example, if you transfer your credit card debt into another credit card with a 0% interest promotional period, you need to understand when that promotional period ends and what the interest will be on the remaining debt. Do your research and have a plan to get rid of this debt!

Key Takeaways:

• Debt consolidation is a great option if your situation benefits from what it allows you to do.

• Understand the drawbacks and ensure this process will help you, not hurt.

Download the Money Bags 💰 App

Great news! You can now download the Money Bags 💰 app on your phone! You’ll be able to get a notification every time I publish a new post and access it directly through the app instead of having to find it in your inbox.

iPhone Installation

1. Open https://moneybags.beehiiv.com/ in your preferred web browser.

2. Click “Login” at the top of your screen and type in your email. You will get an access link sent to your inbox

3. Navigate to your inbox and click on the access link

4. You should be prompted to install the app from there. Click the share button on your toolbar and scroll down to select “Add to Home Screen”

5. Locate the Money Bags icon 💰 on your home screen and open it.

6. Enable notifications so you don’t miss a future post!

Android Installation

1. Open https://moneybags.beehiiv.com/ in your preferred web browser.

2. Click “Login” at the top of your screen and type in your email. You will get an access link sent to your inbox

3. An install app button should appear. If not, click on your profile located at the top right of your screen where you will see an “Add App to Home Screen” button.

4. Click the “Install App” button.

5. Locate the Money Bags icon 💰 on your home screen and open it.

6. Enable notifications so you don’t miss a future post!

If you would like a video walkthrough, you can watch one here. The walkthrough starts at the 0:50 mark. If you have any troubles installing it, reply to this email and I will personally help you work it out.

Things I Found Interesting

• What investors should do when there is more volatility in the market

• 80 Highest Paying Jobs without a Degree (Over $50k)

• US hiring fell sharply in July, an unexpected setback for the economy stoking recession fears

• 16 Free Online Certification Courses To Improve Your Skills

• X (formerly Twitter) accuses advertisers of illegal boycott in new lawsuit

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