Credit card debt can be a great problem for those who are not very careful about the usage of the credit cards. If you are currently faced with a situation where your credit card debts are going unmanageable, there is little that you need to worry. Credit card debt consolidation can help you reduce your debts. However, one needs to bring about a change in the way they use their credit cards so as to capitalize on the gains received by taking to consolidation.
Getting to the roots of the credit card debt consolidation process
When you look at your credit card debts – there are two aspects which need your attention. The first is the principal dues on the credit card and the other which haunts people the most is the high interest rates on the same. There is little that can be done about the principal dues, however taking to consolidation the interest rate comes down considerably.
Let us understand by means of an example how the credit card debt consolidation really helps. If you owe a sum of $20000 on your credit cards and the interest rate is around 18%, you may end up paying a sum of $35,175 over a period of 7 years provided you keep current with the minimum dues payment. In case you are successful in getting your interest rate reduced to 12% by employing the consolidation process, you will be required to pay just $23, 915 over the same period and which will result in an overall savings of 31% for you.
Use Consolidation process in your favor
Even though consolidation programs are designed to offer you maximum support to win over your debt, one has to be careful with regards to their own financial status and the select the plans which will work best in their favor.
Is consolidation of debts bad?
When one takes a consolidation loan, it is used to clear the previous dues and offer an affordable repayment horizon to the debtors. Most of the people get relaxed with the new repayment plan which offers them the benefit of lower interest rate and longer term for payment. All this means that the credit card holders often get into spending more using the cards and again fall into the same trouble where they cannot handle their debts. One must remember that the consolidation loans are also required to be paid back and ignoring them can bring more trouble for the debtors.
The offers like low interest payment or zero interest payment on the dues comes for a limited period which is often to a maximum of six months. Once the period is over, want follows is even higher interest rates on the credit card dues. In such a situation a lot of people are seen running for new cards and companies where they can again avail some more months of relief. However, all these do not bring a change in the financial habits of the individual taking to the consolidation plans and hence they are seen getting into a vicious cycle of debts and ruining their finances to the level where they have to take the route to bankruptcy. So, if the convenience of debt consolidation loans is not handles properly it can have serious implications and hence considered a bad option by many.
Importantly, with all of these apparent debt consolidation tactics, the final result is that they only bring on more debt and drag out the repayment period.
Any debt reduction and relief program, no matter whether it is offered by the government agency or the private companies, cannot offer the desired results, till the individual who takes it understands the basics of it and stops getting into new debts, instead pays maximum to bring their existing debt lower.