There are three main methods of credit card debt consolidation. You can take out a home equity loan for credit card debt consolidation purposes and use it to pay off all your high interest rate debt at once, with only your home equity loan payments remaining. You can take out a personal loan, much like a home equity loan except without requiring your home as collateral. Or you can contact a nonprofit credit counseling agency for help with credit card debt consolidation, determining a budget and paying off your credit card debt in the most cost-effective way possible.
Credit card debt consolidation via home equity loan has the advantage of some of the lowest interest rates available, especially if you have good or decent credit. Often home equity loans offer rates of below 4%, and since the average credit card has an interest rate of 14.4%, this means of credit card debt consolidation can be very helpful.
The negative side of using a home equity loan for credit card debt consolidation is that you are putting your home on the line. If you don’t meet your payments, you could lose your home, and unforeseen expenses arise all too often. If you choose this kind of credit card debt consolidation, make sure the payment plan is feasible. Another potential snag to using home equity loans for credit card debt consolidation are the fees that may be involved. You will probably be facing closing costs, and possibly other fees like an annual service charge, an early payment penalty, points, and more.
Personal loans are similar to home equity loans in structure. This type of credit card debt consolidation also gets you a lump sum at a low interest rate which may be used for credit card debt consolidation, leaving you with only the payment for the loan. These loans may also require closing costs and other fees, and the interest rate is usually higher than those for home equity loans. On the bright side, you are not risking your home.
There are many nonprofit credit counseling organizations as well, who are willing to help you with your credit card debt consolidation. These organizations will contact your creditors and negotiate lower rates, better payment plans, and reduced late fees for you, for little or no charge. Their expenses are subsidized by creditors and donations. It is likely you will have to pay a little, since funding by creditors has dropped recently, but you will probably save more than you pay for by reducing your interest rate, etc. The way this type of credit card debt consolidation works, is; you pay them a predetermined amount every month and they use that money to pay your bills for you.
Whatever credit card debt consolidation option you decide to go with, the most important thing is preventing the problem from recurring. When you rack up credit card debt, you are spending money before you get it, and the problem will just continue to get worse. Number one rule of wise financing is; spend less than you make. If you can’t afford something, don’t buy it! Remember, credit card debt consolidation can help you with existing debt, but it isn’t something you want to have to do in the first place. Create a budget you can live with, and stick to it, and you won’t need to go through credit card debt consolidation again.
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