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Credit Card Debt Consolidation Tips

By: Staff at Mortgage Lenders

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Credit card debt consolidation is a concept that has enormous appeal on the surface. The concept seems simple: exchange a number of high interest credit obligations for one larger monthly payment at a substantially lower interest rate. However making credit card consolidation work like it is supposed to requires careful research and calculation.

Actually, it requires two tools. You ll need a calculator and a pair of scissors. The best first step toward getting out from under a credit mess in cutting your credit cards in half. Do that and you will immediately stabilize your credit obligation; you ll also eliminate the temptation that got you there in the first place. Life will be simpler. Don t worry about retrieving them; paying off your credit cards will be a huge plus on your credit rating and no credit activity for a while won t harm your credit rating. Credit card companies will welcome you back if you choose to resume carrying cards after your debts have been serviced.

The Flashy New Credit Card Method

One of the highly advertised options on the debt consolidation landscape is the zero percent credit card. These cards are like adjustable rate mortgages; they start out at an extremely low interest rate in order to make them appear to be a reasonable debt consolidation device. Those interest rates are going to go up, however. Usually if you re late on one payment, the rates jump. In all cases, they ll go up at the end of the grace period.

You then have the choice of living with whatever the mature interest rate is, or refinancing your debt with another such card. However opening new credit card accounts on a biannual basis is not going to look good on your credit record. For this option, you need to estimate how long it will take you to pay off your debt once it has been consolidated on a new card. Then decide if it is truly a positive financial step, compared to paying off your existing set of creditors. If you stick with your payment schedule, you might realize some savings. Read the fine print carefully however: often these cards have penalties for late payments that can be truly punitive.

Debt Consolidation Loans

Unsecured debt consolidation loans are another option, provided that you can qualify for one. Here again, the notion is to consolidate high-interest debt under one umbrella loan that has a lower interest rate. Finding the right debt consolidation loan might take some slogging. Because of the nature of the loan immediate relief from a high-pressure debt situation some debt consolidation loans have extraordinarily high fee structures. Sometimes the number and size of the fees associated with this type of loan look like they belong in a mortgage a loan several times the size of the debt consolidation loan and with a thirty year life span.

Home equity loans can also be used to pay down overextended credit. In this instance, the interest in the loan may be tax deductible just as with your mortgage. It is probably advisable to limit this loan to the amount of debt you wish to retire. An equity line of credit would just be creating an opportunity for further spending; it will simply be money that you ve already borrowed.

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