People who are struggling to make their credit card payment each month often call us at Golden State Partners and ask if credit card debt consolidation is a good idea. The following is some important guidance about credit card debt consolidation loans.
The Problem With Credit Card Debt
High-Interest Rates
According to the Wall Street Journal, the average American has over $8,000 in credit card debt. The average interest rate on these credit cards is 17 percent currently. Often, people pay 25 to almost 30 percent in credit card interest rates, if their credit is poor.
Many Reasons Credit Card Issuers Can Increase Rates Legally
According to Nerdwallet, these are some of the reasons that credit card companies can use to raise your interest rates:
- When you have had the card for a year
- When the prime lending rate goes up
- If you are 60 days or more late on your payment
- If your credit score goes down quite a bit
- If your promotional rate has ended
It May Not End
At these interest rates, many consumers struggle to make monthly payments. They end up often paying only the minimum payment, which does little to attack the balance. Credit cards do not have an end payment date. If you can’t attack the principle, they will suck you dry in high-interest payments for years, or even perpetually.
Credit Cards Can Ruin Your Credit
If you cannot make your credit card payments, it can ruin your credit, keeping you from making a car purchase at a sane interest rate or keeping you from buying a home at all. Low credit scores can also keep you from a decent rental unit or even from a better job.
Why Debt Consolidation is Better
One Payment at Lower Interest
A debt consolidation loan is a personal loan that allows you to pay off all of your high-interest debt and make one lower-interest payment each month. You usually have a few years as the term for the debt consolidation loan. This tends to lower the payment that you have to pay each month servicing your debt, and it provides you an end date for the pay off of your debt.
The Interest Rate is Fixed
You Have an End Date for Your Debt
Your debt consolidation loan will provide you a date when the debt will be paid off. You may never have that with your credit cards at their high-interest rates.
Improves Your Credit Score
After you have paid off the credit cards with the debt consolidation loan proceeds, you will likely see your credit score rise because your credit utilization rate will be lower.
Debt consolidation loans, when used responsibly with a budget, provide relief from high-interest debt.
Caveats
If you take out a debt consolidation loan without a budget and a firm plan to pay down the debt through the debt consolidation loan, you can get into further financial difficulty. You must absolutely be strict with yourself about putting the credit cards away and not using them, except when you are certain you can pay the balance in full each month. Otherwise, you will just get yourself more financially over-extended and defeat the purpose. Your goal must be to totally pay down the debt that began on credit cards.
Used wisely, debt consolidation loans can free consumers of high-interest credit card debt and provide a day when all debts are paid off in full. Also, debt consolidation loans provide customers lower interest, which helps them get debt relief through lower monthly payments.
Call us today at Golden State Partners with any questions you have about debt consolidation loans. We can help you get free of high-interest debt