Whether you have two, three, four, or more credit cards, you may want to consider if it is time to consider the need to consolidate credit cards.
The more monthly payments you have the trickier life may get, and the need for debt consolidation help should be something to seriously consider.
Let’s take a brief look at the tips, tricks and traps of debt consolidation.
Debt Consolidation Can Lower Your Monthly Payment
The key benefits of consolidation loans are that you only have one monthly payment instead of many, and more than likely you can lower your payments as well.
For example, say someone has four credit cards and they are paying around $100 per month to each of them. By obtaining a debt consolidation loan, you can pay off all of these credit cards and combine them into one loan. The payments will be based on the total of the loan, which will be equal to the total of your balances on your credit cards.
Let’s say your new payment comes out to be about $300 a month. Now your are saving $100 per month, paying out $300 instead of $400, and now you only have one creditor to pay instead of having to send payments to four different companies every month.
Debt Consolidation Options
There are many debt consolidation companies doing business today that offer to consolidate credit card debt and consolidate loans of all types. Home equity loans are available to consolidate debts, as well as personal loans.
Banks and finance companies usually will approve people for these types of loans more than not because of the fact that you will be saving money on your monthly payments as well as combining your bills into one.
Once You Consolidate Debt, Do Not Borrow Money
Credit card debt consolidation can be a tricky thing though, as most people don’t have the discipline to stop using their credit cards after their consolidation loan pays them off. Most of the time, the debt consolidation company will require that the credit cards being paid off be closed out, meaning those cards can no longer be used. However, this is not always the case, and even when it is, people can just apply for another credit card and likely get approved.
Once you consolidate credit cards you don’t want to fall into the trap of opening up more credit card debt, as this will make the consolidation loan meaningless.
Think about it.
You took out the consolidation loan to make life easier by having one payment and paying less each month. By opening up new credit cards you now owe them money and have to pay them monthly, and you still have to pay on your consolidation loan as well.
Now you will be in a worse position than you were before you consolidated your credit cards. This is something to keep in mind for anyone who ever considers consolidating their debt, and a pitfall that it is wise to avoid.
Conclusion: Debt Consolidation Can Help You If You Are Disciplined
When you consolidate credit cards it should be a good thing. It should make your life easier and less stressful, as well as help you save money.
However, it is key to make sure you don’t fall into the trap of opening too much new debt, as you will find it could lead to some great financial trouble.