Debt Consolidation - The Answer To Credit Cards?

Is debt consolidation the right answer to your credit card debt? Perhaps you are drowning in debt and are receiving daily letters in the mail from companies claiming to eliminate your credit card debt. These offers are likely for debt consolidation loan plans. Are these right for your credit card debt, or is there another way?

First, think about what makes these loans an appealing way to eliminate your credit card debt. Most often the monthly payment you are offered with a debt consolidation loan is lower than the combined monthly payments of all of your credit cards. The reason for this is that the debt consolidation loan has a longer period of time, so they spread out the payments more than your credit cards do.

Debt consolidation loans give you the feeling that you eliminate your credit card debt. While the credit cards may be gone, the debt is still there, so this is a deceptive feeling. In fact, this feeling of having your debt gone can actually lead to more debt. If you are not careful, once you have transferred the money from your credit cards to the debt consolidation loan, you will quickly find that the credit cards start racking up charges again.

As nice as it would be to have a magic answer to your debt problems, debt consolidation loans are not it! They can end up costing you a large amount of money in the long run. First, debt consolidation loans are drawn out over many years. This means that even if you are receiving a low interest rate, the interest rate is being charged for a long time. To top that off, the loan may have an early repayment fee that makes it difficult for you to pay off the debt early if your situation improves.

Another way that the debt consolidation loan may be more expensive than your credit card debt is through the interest rate. If you have credit cards with low introductory rates, or even zero percent interest rates, even the low rates you are being offered on a debt consolidation loan will be more expensive. The only way to benefit from the rate on one of these loans is to find one that is less than the average of your current interest rates.

Instead of debt consolidation loans, consider a different tactic to fight credit card debt. First, curb your spending. Eliminate any unnecessary spending. This starts with a good budget. By writing down your expenditures, you can see where you have extra money to put toward your credit cards. Once you have found this money, dump as much of it as you can onto your smallest balance. Once that is paid off, continue dumping this money on the next lowest card. In the end, you will be paying huge sums towards your credit cards and will pay them off.

Remember to cancel the cards once you have paid them off. One card is sufficient to carry for emergency reasons. The way you get into trouble is by having too many cards and using them for every day purchases. A credit card is useful in certain situations where cash or checks are not useful, but it should not be used all the time. This will protect you from heading into a problem with credit card debt again.