Credit Card Debt Consolidation – The Why’s and How’s

I was in debt for a long time. It was absolutely miserable. It wasn’t a lot based on today’s standards; for a college kid though, the $3,000 I was suffering with was truly a burden. Before I paid it off I considered debt consolidation. Why would I consider such a thing? Today, we’re going to explore this concept a little bit more.

Why would I consider debt consolidation at all? Students consolidate their student loans after they graduate from school; if you’ve heard this term at all it’s usually been in that context.  Did you know that could you also consolidate your credit card debt? If you are paying off multiple credit cards, this may be a good option for you to consider.

Why shouldn’t I consider debt consolidation? If you don’t have a set budget or if your spending is out of control. If your money flow is already crazy, please deal with that before consolidating your debt. You could end up spending the money or using the new line of credit for a totally different purpose than the one you originally intended.

How do I do it? There are two ways that you can consolidate your credit card debt.

  • Another credit card. This is potentially risky, considering that if you already have a spending problem, you are more likely to max that card out as well. The good thing? A lot of credit card companies offer a lower interest rate if you transfer a balance. One of your current credit card companies can also assist you with this, so always check with all of them before making a decision. A family member of mine ended up getting 0% interest for hers because she’d been a loyal and dependable customer for years.
  • A loan from your bank or other financial institution. Many banks offer loans for credit card consolidation to encourage paying off debts. The people who work at your bank can help you make the best decision for your situation. My institution, for example, offers these where the payment time can be anywhere from 12 to 60 months. The interest rates then fluctuate based on the amount of time you schedule to pay off your loan. Most banks work similarly.

Always make sure that you do your research before you use any resource for consolidating your debt. Read contracts carefully, and make sure you ask questions like the following:

  • How much is the interest rate? Are there special rates for transferring other balances?What happens if I miss a payment?
  • Will that increase my interest rate? (Especially with the credit card, your rate could go from the 3-5% you may have gotten as a special transfer rate up to the 15 or 16% that the company charges normally.)
  • If I pay more than the minimum, does that count toward the following month’s payment?
  • What if I pay it off before the suggested time?

Maybe debt consolidation is for you. One payment a month can make your life easier and help you to be debt-free quicker than you could have been before!

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