subject: Is Debt Consolidation Refinance Good? [print this page] Have you considered a debt consolidation loan? If you have, then you probably have a huge amount of debts, credit card bills, or other loans that are strangling the life out of your monthly budget. One way that you can handle all that debt is to pay it all off by taking out a debt consolidation loan.But is debt consolidation really a good idea? Isn't it just another form of debt?Well, yes, it is another debt. But it can be good if used wisely. Here's the way it works.
One very good thing to do with a debt consolidation loan is to pay off your credit card balances. Credit cards bear the highest interest rates possible, and are almost always much more expensive than personal loans or car loans. The best thing you can do with a debt consolidation loan is to pay the credit cards first.
Some credit card companies will entice you to do business with them by offering a reduced interest rate for transferring your balances from other higher-rate credit cards. When you compare the high interest rate with the new lower interest rate, you seem to be saving money. The problem is that these low interest-rate offers only last a short period of time, and then they go to higher rates, and the savings is lost. The only way to continue the savings is to transfer the balance again; and that can hurt your credit rating. Don't think that a debt consolidation loan is really the same thing as transferring a balance from one credit card to another. They are very different things.And there are other ways you can take care of your debt problem as well. Here are some active steps you can take to manage and reduce your debt burden.
On the other hand, if the loan encourages the borrower to get deeper into debt, running up more credit cards, and splurging on luxury goods, then the debt consolidation loan could be considered bad.But the difference is in the mind of the borrower, not in the loan itself. A debt consolidation loan can do a lot of good, if used wisely.
An important initial step is to stop running up your credit cards. Credit card debt is so easy to build up, and very difficult to pay off. If you don't stop using your credit cards they will keep you in debt forever.
