Credit Card Consolidation – When Does This Debt Relief Option Make Financial Sense?

The definition of credit card consolidation is simple

. It is the act of obtaining a loan to pay off several balances at once. Once you do this, all you are left to do is pay off the loan.

There are several benefits to credit card consolidation:

#1 - Lower interest rates. The average consumer credit card interest rate is 18% or more. Consolidation loan rates can be half that. The lower the interest rate, the lower the monthly payment and the less you will have to pay back over the life of the loan. Did you know that your credit card interest rate could skyrocket to over 22% if you make one late payment? Consolidation loans do not do this. They come with a fixed interest rate and fixed monthly payments that will not dish out any surprises.

#2 - Specific loan terms. Credit card balances remain open until you have paid them off. If you are making minimum payments on high balances, chances are you will be paying on those balances for a long time. Many times, people carry the same high balances for ten years or more as they struggle to make minimum payments. Credit card consolidation loans, on the other hand, are "installment loans" that come with a fixed interest rate, a fixed payment, and fixed loan terms. What this means is that you know the end date as soon as you are approved for the loan. Car loans are great examples of installment loans. When you purchase a car, you are given a booklet with the number of payments, what the payment will be, and when the last payment will be paid. Consolidation loans work the same way.

#3 - Monthly payments that count. With credit cards, you are given a monthly payment that will keep your credit score intact, but you are really supposed to pay more than that if you want to pay your bill off. However, many times we rely on just making the minimum payment so we can keep some cash in our pockets. This works in order to help us live from month to month, but over the long run, these payments don't really count toward your principal balance. What you are doing is paying interest month after month, but none of your payment is going toward paying the bill off. Since credit card consolidation loans are installment loans, each monthly payment counts toward the end date. If you are scheduled to make 36 monthly payments, your first payment counts toward the elimination of your debt just the same as your last.

Yes, the definition of credit card consolidation is taking out a loan to pay off your balances, which may seem scary when you are trying to eliminate debts, but when you think about it the rewards are worth it. As long as you stick to your debt consolidation installment plan and don't open up any new accounts while you are in your repayment period, you can be debt free in a matter of months (not decades).

Credit Card Consolidation When Does This Debt Relief Option Make Financial Sense?

By: Arvel Bert

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