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Many people have misconceptions about debt consolidation. They think credit card debt consolidation is the solution to their financial troubles, but it is not a magic cure. Financial recovery is long, difficult and often treacherous.
It is possible that debt consolidation will not give you debt relief faster, reduce your payments, or save you any money.
The concept behind debt consolidation is to put several debts into one account. Instead of making multiple payments each month, you make a single payment. The amount of debt may stay the same and the term of the loan may be longer.
Before you decide to consolidate your debt, consider the following:
Credit Cards
If you already have a certain credit card that has a decent rate as well as a high credit limit, consider transferring all other card balances onto it. The card issuer might even give you a higher credit limit and promotional balance transfer rates.
This approach is great but you should also be aware that credit card rates could change anytime. Card issuers can change their terms with just fifteen days' notice. Avoid using this card until you pay off the previous balances, because new charges will be charged a much higher rate.
Home Equity Borrowing
You might want to consider transferring all your debts into a home-equity loan. It will help you get a much lower rate while making your payments tax-deductible. There are some risks involved in this especially because you are placing your home as collateral. If you are not able to make the necessary payments, you are at risk of losing your home.
You are securing the debt. Credit card debts are unsecured loans so it can be erased once you declare bankruptcy. This is not the case with a secure debt.
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