Debt Relief Tips - Borrowing More Leads to Owing Less On Credit Cards

Many consumers have acquired too much debt, as it is just too easy these days to use a credit card as opposed to cash

. Because credit card companies are now requiring minimum monthly payments of about 4% of the remaining balance, many consumers are simply unable to put a dent in the amount that they owe. A late payment can make financial problems even worse, as credit card issuers don't hesitate in adding late penalties to the amount the debtor owes. Through repeated use and carelessness, the debt piles up and soon the debtor owes more money than she can repay. Are there any solutions in this situation?

The answer might be to borrow more money using debt consolidation. Borrowing money when you already owe more than you can manage may seem somewhat odd and not very productive, but it can be effective.

Debt consolidation involves borrowing more money not to add to the existing debt, but to replace it. It isn't a secret that credit card debt is expensive; the average interest rate is about 19% annually. There are plenty of ways to borrow at fair rates, including unsecured personal loans and second mortgages. The savvy debtor will sign up for a new loan, like a home equity loan, in an amount that equals the sum of all of his or her current debt. If one owes $25,000 on five different credit cards, the solution would be to obtain a loan for the same amount and pay off the charge cards. A home equity loan might have a rate that is only half of the rate charged by credit card companies, resulting in a much more affordable payment. The borrower saves money with lower interest and has fewer monthly payments to make, leading to an ideal solution. The debtor will have the convenience of paying less interest and making only one payment each month.

Combining your bills is far from a perfect solution, however. Making use of credit cards again after paying off the bills can actually make the problem worse, as the capacity for debt is now much higher than before. Failing to make the payments on the new loan will put the borrower back in trouble. Failing to secure a loan at a lower interest rate will only add to the debt burden.

Consumers with financial problems are urged to seek financial assistance or credit counseling before combining their bills with new loan. The benefits of combining bills with a single loan are significant, but the pitfalls are dangerous. By using a financial tool called debt consolidation, debtors can borrow more money and ease their debt burden at one time. If utilized wisely, a new loan can help an overly burdened consumer out of financial trouble, even though it seems like the last sensible thing to do. as borrowing money is the cause of the problem. Debt consolidation is not something to jump into without first giving it a bit of thought.

Debt Relief Tips - Borrowing More Leads to Owing Less On Credit Cards

By: Brendon Calvert

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