You've probably seen commercials or ads about credit card debt consolidation offers that promise to roll your credit card debt into one low payment. But while this may sound like an easy fix to your credit card woes, it's important to understand what debt consolidation entails before considering it seriously.
Credit card debt consolidation works by taking out a loan, typically a home equity line of credit or a loan from a consolidation firm, and using that loan to pay off all of your credit cards. From there, you simply make one payment to whoever issued the line of credit, either the bank or the debt consolidation company. In most cases, the interest rates are lower than the interest rates from credit cards, which can reach 29% or more.
If credit card debt consolidation sounds like it's too good to be true, in some cases it may be. Some of the drawbacks of it include:
If you think debt consolidation is for you, be sure to do your homework first before deciding on a company. Do extensive research online by reading reviews and checking Better Business Bureau ratings. Stay away from any company that pressures you to make a decision.
You should also make sure your creditors will actually work with a debt consolidation company; some companies refuse to work with them, so you may not be getting the savings or convenience you hoped for.
If you have high interest credit cards and find that the majority of your monthly budget is swallowed up by payments, then credit card debt consolidation may be a good way to better manage your finances and save some money on interest in the process.
For credit card debt consolidation to be successful, you must have discipline in order to prevent additional credit card problems from happening. If you do opt for debt consolidation, make sure you manage your spending and avoid opening up new lines of credit.