Can Consolidating Defeat Credit Card Debt?
Credit card debt consolidation sounds like a great way to retire your high rate credit card debt. It must be, because it is clearly big business, judging by the sheer amount of advertising online, on the radio and on television. With the average American household in credit card debt amounting to an average of $9,000, it’s no wonder that so many people are looking for a quick fix.
Keep in mind that not all credit card debt consolidation plans are equal. As with everything in life, much of it depends on your personal situation. One consideration is just how large your debt is. Is the amount you’re paying enough to warrant looking at options that, while offering solutions, still come with their own risk?
Home Equity Loans
Banks and financial service companies offer Home Equity Loans as one way to consolidate debt. Many financial experts warn that you may not want to use your home’s equity, without great consideration. There are definite tax advantages to a home equity loan, but defaulting on your home equity loan is far more serious than defaulting on a credit card balance. It can actually lead to losing your home. If you consider a home equity loan as a way to consolidate your credit card debt, make certain that the benefit outweighs the risk.
Balance Transfers
Another way to consolidate credit card debt is to take advantage of credit card offers that provide lower interest or even zero percent balance transfer options. This is a more straightforward consolidation from one or more higher-interest credit cards to one with a lower interest rate. A simple balance transfer of this type could save you hundreds of dollars a month. If you can find a credit card with a lower interest rate or are able to take advantage of a zero percent balance transfer to a new credit card, this may be a simple way to consolidate your credit card debt. Of course, there are risks with this option as well. Pay close attention to how long the lower or zero percent interest rate will actually last. Will that be long enough for you to pay off your debt? If not, will the normal interest rate still be lower than the rate that you are currently paying. Also, be sure to read the cardholder agreement to find out about any fees, such as an annual or balance transfer fee, that may take away from your overall savings. Finally, be prepared to make all of your new payments on time every month, as many credit cards will raise your interest rate regardless of the special offer if you are late even once with your monthly payment.
One of the best steps for getting debt free is to refinance your high interest balances and get lower payments. Once you are paying less in interest, you can apply more money toward your actual principal and eventually become debt free. Of course, you need to keep in mind that you will be defeating the entire purpose if you continue to add to your debt after you have consolidated it. You may want to try and develop a budget to help you in taking advantage of the fact that you have consolidated your credit card debt no matter what strategy you use to achieve that goal. Be prepared to cut back on spending and focus on paying off your current debts before incurring any new ones!