The Pros and Cons of Credit Card Debt Consolidation

May 16, 2012 by  Filed under: Debt 

It has been a trying succession of years for the American public with bankruptcies, company closures and unemployment, draining the financial well of the country. As of 2010, the U.S. Census Bureau reports a rise in the nation’s poverty rate to 15.1%, which is equivalent to 46.2 million people. This was just 14.3% in 2009, and 13.2% in 2008. Average citizens now have to take on a minimum of two jobs to try and make ends meet. But in spite of this, they are still caught up in rising credit card debt interests, leading to repossessions and foreclosures. About 1 million people were said to have been displaced in 2010, and analysts believe the circumstances will continue to worsen this 2012, with people’s savings being drained up. This is probably the reason why credit card debt consolidation is very important.

Debt consolidation refers to the process of filing a loan to pay off many others, so that cash flow will only be directed towards one debtor, and a lower and fixed interest rate will be honored. It is usually made with a collateral in play – typically a house or any other fixed asset – so that the lender’s risk is lowered. It is recommended for those who are dealing with credit card debt, since this tends to carry larger interests than a single bank loan. Not only will this enable people to save on loan costs, it will also help them manage their debt payments better, and avoid having to suffer legal consequences.

Despite of this though, credit card debt consolidation does have its downsides. First of all, this type of debt rescue entraps you in a prolonged payment term. Although this may not necessarily be how the case starts with, people are often tempted to file for extension, so that they get to reduce their monthly dues. And as long as this is condoned, interest payments will keep on piling. As a result, the debtor may actually end up paying more than saving. In addition, this agreement may also encourage incurring other debts. Additionally, it may not assure the given benefits to people with poor credit ratings. Aside from receiving stricter agreement clauses, loans may become more expensive for the borrower. Lastly, with a secured debt, you may risk losing a fixed asset if you miss payments. And, it may also lessen your chances for getting debt relief programs, which are explained in the succeeding section.

Other alternatives to credit card debt consolidation are debt settlement and personal bankruptcy. The former involves an agreement between the creditor and the debtor, regarding a reduced balance payment, so that it can be satisfied right away. The latter entails filing for Chapter 13, 7 or 11, with supporting evidence, to receive discharge from having to pay the debt. Credit counselling is another viable intervention. However, it is done prior to the exacerbation of the debt situation, and includes education about how to avoid incurring debts, as well as how to establish an effective debt management plan and budget.

Whichever one you go with, you have to make sure that you are ready to commit to the obligations. Otherwise, you might lose everything you have, and you may just end up becoming part of the statistics.

For more information about Visa credit card debt and credit card debt consolidation, visit our website

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