Should I Consolidate Credit Card Debt?

December 23, 2009 by  Filed under: Debt 

Times are tough and people are having trouble staying on top of their bills. One thing you might want to consider is consolidating your credit card debt.

The idea behind consolidating your credit card debt is to obtain a personal loan or other form of financial product to pay off one or more cards. In other words, a consumer would apply for a personal loan, for instance, and use that personal loan to pay off their card debt.

There are several reasons to consolidate card debt, but the most common reason is to lower your monthly payments. Doing this will mean that you will have more disposable income at the end of each month.

For example, let’s say you have three credit cards with monthly payments of $40, $50, and $60. You probably could find a loan, which would be used to pay off the balances of these three cards, and you would be left with a single monthly payment on the loan, which would normally amount to less than the combined payments for all three cards ($150).

Lower interest rates and special promotions are two more reasons it might be a good idea to consolidate your credit card debt. If you have credit cards with relatively high interest rates (15% or above), consider the savings if you were to obtain a personal loan at 6.9% to pay off these high interest credit cards.

Simplicity is another reason people decide to consolidate card debt. It makes people’s lives simpler if they only have to worry about a single payment each month as opposed to several cards and small loans. This is also conducive to budgeting because the personal loan will most likely be a fixed amount each month and due around the same date each month.

An alternative to using a personal loan would be to apply for a high credit limit card and transfer the existing card balances over to the new card, thereby consolidating the payments to one. If you do this, be sure to apply for the card with the lowest annual percentage rate.

Consolidating credit card debt is a very common financial solution. It can assist consumers in organizing their debt, taking control of their finances, and even save money in the long term.

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