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No. of Recommendations: 13

18.365% (Average APR)

First, this appears to be simply your four interest rates added together and divided by 4 (the number of revolving accounts). While that's technically correct, it's not a truly accurate picture for comparison.

41% of your debt is at 13.24% (go you! that's awesome) not 25%. So you don't want to just average it out per account. Really you want to weight this calculation by the amount owed at each interest rate. Imagine, as a hypothetical, you owed:

20% \$1,000
10% \$9,000

With an average interest rate of 15%. But not really. That's an average interest rate per account, not an average interest rate per dollar owed. The true average interest rate would be 11% if weighted by debt.

While your debt usage is less exaggerated than that example, it's definitely enough to skew the numbers that you'll need to determine if a consolidation loan make sense.

So, circling back, let's calculate your dollar-weighted average interest rate and see how you fare. It's a bit convoluted, but basically if you multiply the interest rate by the balance for each of the accounts and then add up those amounts and divide by the total balance you can get a much clearer picture...

`.2124 * 4682.71  =  994.61.1324 * 7555.50  = 1000.36.1999 * 3813.66  =  762.35.1899 * 2193.59  =  416.56                   =======                   3717.883717.88 / 18245.55 = 17.40%`

Your true average interest rate is 17.40%, which is a much smaller delta to the 15% you're looking at with the consolidation loan.

Secondly, don't fall into the trap of assuming that you're interest rate will be at 17.40% for the duration of your pay down. The consolidation loan will be (I assume) locked at 15% from now until you hit your \$0 balance payoff date. But where will the credit cards be? We already know that even with no interest rate reductions that you'll be at an average interest rate of 13.24% as soon as you've paid off the three highest-rate cards. 43% of the money you owe right now is at a lower interest rate than the 15% loan you're looking at.

And do you think it's likely that at some point during the pay down you'll be in a strong position to argue for a rate reduction? Perhaps. My crystal ball is in the shop, so I honestly don't have an opinion on that.

I think you've got a lot of tools you can look forward to using over the course of the debt paydown that you've already started. The thing about snowballs is that they get bigger and add inertia every month you keep rolling them. You're just starting to pick up speed and before you know it, it's going to be unstoppable. Just keep up the good work, that's my advice.

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