Digital News Report – Credit card consolidation is when you refinance all of your outstanding balances into one loan that usually lowers the monthly payment along with the interest rates. When a person consolidates credit cards, it can make it easier to manage the debt. While this can be one way that people address their credit card debt, there are some dangers that a person should be aware of before undergoing the credit card debt consolidation.
The biggest danger involved with credit card consolidation is that it can give a quick fix to the problem and the person didn’t address the root of why they got into debt in the first place. If a person has created credit card debt that they haven’t paid off and haven’t learned to manage money and budget, they could find themselves with even more credit card debt in the future.
According to a report on bankrate.com, 70 percent of those people that underwent a debt consolidation loan had either the same or higher debt two years later.
In order to avoid failure and eventually become debt free, you need to learn how to manage money and budget so that you are able to pay off the money you owe. If you seek out credit counseling services, they can help set up a plan to pay back your debt.
Credit card consolidation can still be a helpful as a way to pay off higher interest credit cards by refinancing them into lower interest loans. In order to qualify for a lower interest rate debt consolidation loan, you may need to have an excellent credit score. If you don’t, you still can get a bad credit debt consolidation loan, but it will be more likely that you will be paying higher interest. You also might have to use a home equity loan to consolidate your credit cards. This can cause you to change an unsecured loan into a secured loan, and if you don’t make the payments you could lose your home to foreclosure.
You can shop around for a credit card consolidation. Sometimes people will refinance with a 0 percent credit card balance transfer. This usually isn’t practical for most people as the promotional 0 percent APR usually expires in 6 months. You might be able to find a low interest rate fixed rate balance transfer that lasts until the balance is paid off. Paying a little bit of interest might be the better option than a short term 0 percent offer, because it gives you time to pay off the credit card debt. Every time you transfer balances there is a fee that you pay, which doesn’t always make 0 percent deals the cheaper route.
By: Victoria Brown