Posts tagged: credit_card_consolidation

Should You Do a Credit Card Consolidation?

Credit card consolidation is when you have a large amount of debt that is branched out in several different credit cards, loans, mortgages, and other form of credit, and you take all of those forms of debt or credit, and you “consolidate” them into one big form of credit. In many cases, consolidating your credit card debt is not a bad idea, but in others, this type of solution only makes things worse.

Say you have three credit cards, all on which you have a balance within a seventy-five percent range of your credit limit. Besides that, you have a mortgage on your home that you are only six years away from paying off after a twenty year mortgage plan. You are thinking about debt consolidation, and you want to know what would be the best way to go about it. It is important to know what kind of debt consolidation possibilities exist out there, and to know just which one is going to get you out of debt faster with the least amount of risk.

Option 1: Low Interest Rate Credit Cards

When you think about consolidating your debt, this may be one of the best ways in which you could do it. Shop around for a new credit card that has a great interest rate that you could easily pay a large balance on. These kind of credit cards could be a great solution to your old, high interest rate cards if you are disciplined enough to pay your bills on time and not rack up the debt on this new credit card too.

Be careful, though, because sometimes these credit card interest rates are too good to be true. You need to know if the low interest rate you got on your card will change over an extended period of time, because sometimes these rates are only introductory. Credit card companies use teaser rates to get people interested in their cards, then eventually the new and wonderful card is not so wonderful anymore, leaving you in more of a tight spot than you were to begin with.

Option 2: Home Equity Loan or Line of Credit

This option can be very risky. By putting your credit card debt into your home, you basically say, “If I do not pay my bills, you can have my house.” Be careful when you consolidate your debt into your home, and be completely certain that you will be able to pay your bills on time and with ease. If you do this, consolidating your debt into your home equity line of credit will be a great solution, because the interest rates are usually much less in this case than with credit cards.

Option 3: Debt Consolidation Loan

Getting a loan may be the solution for you. However, you must know first if you will really be paying less. Because of your financial trouble, you may not be qualified for a low interest rate, therefore you end up paying just as much or more than you did before.