When you get so deeply in debt you can’t sleep at night or you’re afraid to answer the phone because you’re sure it’s yet another debt collector calling to harass you, the one thing you probably want more than anything else is to get rid of that dept. One solution is to consolidate your credit card debt but there are right ways and wrong ways to do this. It’s important to learn the differences before you leap.
There are several advantages to credit card debt consolidation. First, you should have a lower monthly payment than the total monthly payments you are currently making. Second, it can do good things for your credit rating. And third, you should be able to get out of debt faster.
Trading all your debts for one new one
No matter what type of debt consolidation you choose, what it will boil down to is that you’ll end up with a new loan. However, it should have a lower interest rate than those that you have now and you’ll have more time to pay it off. Of course, that turns into both good news and bad news. The good news is that you’ll have a lower monthly payment due to the lower interest rate and because you’ll have more time to pay off the loan. The bad news is that, well, you’ll have more time to pay off the loan –maybe as long as 7 to 10 years. That can be a very long time and those are years during which you’ll have to be very careful to not add any new debts.
The wrong ways to consolidate your debts
The worst way to consolidate your debts is if you go online and choose the wrong debt consolidation company. This is because of the way that debt consolidation works. You will be promised that the company can reduce your debts, maybe even fix your credit rating and pay off your debts. In return, all you have to do is send it one payment a month. The problem is that there are unscrupulous and unethical companies that will take your money but never pay your creditors. Since it can be as long as six months before you realize what’s happening, you can easily end up in worse shape than when you started.
Variable interest rate debt consolidation loans
A second wrong way to consolidate credit card debt is with a variable interest loan. These often start off with a very attractive interest rate but can escalate dramatically to the point where you’re actually paying more each month on your debt.
How are you on self-discipline?
Before you sign up for even a “good” debt consolidation loan, you have to ask yourself how you are on self-discipline. If you’re not a very good money manager because you have a problem with spending, a debt consolidation loan just might not make sense for you. You would have to become very careful after you consolidated your debts because you’ll be feeling under less pressure and you might start adding new debts. You just can’t run up a lot of new debt while you’re paying off that debt consolidation loan or you’re likely to end up in an even bigger mess.
The right way to handle credit card debt
The financial guru, Dave Ramsey, is very anti debt consolidation, mostly due to the old truism that “you can’t borrow yourself out of debt.” A better solution to credit card debt is called debt relief or debt settlement. This is where you hire a company like National Debt Relief to negotiate with your creditors to have both your balances and your interest rates reduced. As a general rule, our debt counselors can save you thousands of dollars and have you debt free in 24 to 48 months. Get more information by calling our toll-free number of filling out the form you’ll find on the right side of this page.