Why Consolidate Credit Card Debt?
Credit cards are designed to provide short-term finance for an individual. As such, the costs of maintaining credit card debt in terms of interest rates and charges is likely to be much higher than servicing the same debt from a long-term source such as a secured loan or an unsecured personal loan.
In the essence the main reason for consolidating credit card debts should be to take advantage of the lower interest rates charged on long-term sources of debt such as a secured loan or unsecured personal loan. In addition, if multiple credit cards are in use, then there is also the benefit that taking out a consolidation loan will also reduce the number creditors an individual has to deal with each month.
Consolidate Credit Card Debt: Getting a Consolidation Loan
If consolidating credit card debts is the right solution for an individual then there are two routes to credit card debt consolidation:
- Debt Consolidation Companies – One route is for the individual to approach a specialist debt consolidation company. Here the company will issue a consolidation loan which takes care of the balance of the credit card debt, leaving the individual only having to pay back a single monthly payment to the debt consolidator.
- Self Managed Solution – Another option is for the individual to manage the debt consolidation for themselves. Here an individual will need to assess the total value of the outstanding credit card debts. A loan should then be taken out that has a lower interest charge than that of the outstanding credit card debts and the money used to pay off the short-term credit card debts.
In summary, credit cards should be used to fund short-term credit needs. Where it becomes evident that one’s credit needs are more long-term in nature, then it is worth considering consolidating credit card debt into a cheaper long-term source of finance, such as a secured loan or unsecured personal loan.