Having too much credit card debt is a scary and powerless feeling. If you're in significant credit card debt, however, you have options that can help you to pay down your debts. One such option is debt consolidation. It's important to learn the best way to make sure a consolidation helps the account holder.
Debt Consolidation Basics
One of the biggest reasons that racking up the balances on multiple credit cards is so problematic is that you have to remember the due dates and minimum payments for each card. Juggling all of these different cards can lead to confusion and, worse yet, missed payments. Debt consolidation takes care of this dilemma by replacing your many payments with one monthly payment. In most cases, you can have this payment come directly from your bank account, ensuring that you don't forget about making a payment.
Types of Debt Consolidation
The most common type of debt consolidation is a loan from either a bank or credit union. You can take a personal loan or a loan against the equity you've built up in your home; some banks, such as Wells Fargo, allow you to take an equity loan against your automobile. You can also consolidate your credit card payments through a debt settlement or debt management program, but these programs restrict your use of credit and make it difficult to apply for new forms of credit.
Reduced Interest Rate
One way you can benefit from consolidating your debt is by getting a lower interest rate than your credit card companies currently offer. If you're fortunate enough to qualify for a premium interest rate, you can save serious cash by consolidating. Even if you don't get a top-notch interest rate through debt consolidation, you can still benefit, particularly if your credit card interest rates were increased due to late payments in the past. Furthermore, if you hold store credit cards, any consolidation loan you'd take is virtually guaranteed to be lower, as these cards are notorious for their high interest rates.
Living Without Credit
Debt consolidation can do wonders for you, provided you approach the situation the right way. This means avoiding the use of your cards unless absolutely necessary. One potential issue with a consolidation loan is that it leaves your cards with no balance so they are available to use again. It's important to exercise caution before entering into a consolidation loan; if you end up relying on your cards again, you'll be stuck paying both the loan and your cards, a scenario which can put you in financial distress.
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