Credit Card Debt Consolidation

In 2002 there were over 1.3 million bankruptcies, the majority caused by unmanageable credit card debts.

Debt consolidation is the process of combining all outstanding debts in one loan account. For example, you may have an existing loan with a balance of $ 2,500, a credit card balance of $ 1,000 and a store card balance of $ 500. These could all be consolidated into one loan of $ 4,000. The purpose is usually to lower monthly repayments, through either lower interest rates on the new loan, or lower repayments from an extended repayment term, or both.

Should you consolidate debt? Debt consolidation does not work every time, but it's worth investigating. If you decide to consolidate your credit card debt, and continue spending on your credit cards, it would only worsen your situation.

Firstly beware of emails and advertisements from debt counseling companies. In November of 2003 the FTC, IRS, and State Regulators issued warnings when seeking help from counseling agencies because of the increase in number of fraud cases. Many of these agencies claim to get you out of debt by making use of legal loopholes. Forget it. If legal loopholes were present, credit card companies would not issue you credit! One option in case you need help is to contact organization like National Foundation for Credit Counseling. NFCC has branches throughout the country; they are a non-profit, community organization that provides free and confidential debt management advice to anyone who needs it. NFCC gets paid by creditors, so it's in their best interest to work out a repayment plan rather than advise you to declare bankruptcy.

You could take a number of debt consolidation moves yourself .Try negotiating better terms with your credit card company. Many customer service people are authorized to reduce rates if you are unable to pay back the installments. Consider taking a home equity loan since it has the advantage of carrying a fairly low interest rate, currently in the high single digits, and what interest you do pay is tax-deductible. If you have reasonably undamaged credit, you may qualify for an unsecured personal loan. Credit unions typically offer lower rates than banks, but even there you can expect a rate of 11% or more. Still, that may be a whole lot less than the 20%-plus you pay to the credit-card company. You could try getting a personal loan backed by your automobile or other real property. Because these loans are secured, you should get a lower interest rate loan and it would consolidate all your payments into one much lower payment.

Depending on your credit card limit, you may also consider transferring all of your balances onto one low interest rate credit card. If none of your cards are offering a low interest rate card, try signing up for a new credit card.

Debt consolidation works in many cases, but only if it is backed by a strict personal budget program.