The Dupont family has a household income of $120,000 per year. Their current monthly expenses are $6,500, including a $2,300 mortgage payment, $800 car loan payment, and $400 for credit card minimums. They are considering consolidating their car loan and credit card debt into a new second mortgage at 6% interest over 10 years. The outstanding car loan is $25,000 at 5% (remaining 3 years), and credit card debt is $15,000 at 19.99%. What is the primary financial benefit for the Dupont family if they proceed with this debt consolidation, assuming they maintain discipline and do not incur new high-interest debt?

Question: The Dupont family has a household income of $120,000 per year. Their current monthly expenses are $6,500, including a $2,300 mortgage payment, $800 car loan payment, and $400 for credit card minimums. They are considering consolidating their car loan and credit card debt into a new second mortgage at 6% interest over 10 years. The outstanding car loan is $25,000 at 5% (remaining 3 years), and credit card debt is $15,000 at 19.99%. What is the primary financial benefit for the Dupont family if they proceed with this debt consolidation, assuming they maintain discipline and do not incur new high-interest debt?

Answer options:

• A significant reduction in their total outstanding debt principal.
• An immediate increase in their net worth due to lower interest rates. ✅ A substantial decrease in their overall monthly interest expenses.
• An opportunity to pay off their primary mortgage faster.

Correct answer: A substantial decrease in their overall monthly interest expenses.

Explanation: The primary benefit of consolidating high-interest debt like credit cards and, to a lesser extent, car loans into a lower-interest secured loan (like a second mortgage) is the significant reduction in overall monthly interest expenses. This can free up cash flow and accelerate debt repayment, assuming no new debt is taken on. The total principal remains the same, and net worth is not immediately increased, nor does it directly accelerate the primary mortgage.