The struggle to pay off credit card debt is a common one. Many people who carry high balances on their credit cards have at one time or another transferred balances to a new credit card either to avoid having to make a credit card payment one month or to benefit from a temporary low interest rate offer. Yet most people also know that experts largely say this is an ineffective way to manage debt. A debt consolidation loan is generally considered to be a more beneficial way to manage debt, but it is not without its pitfalls and risks.
What It Can Accomplish
On the surface, a debt consolidation loan appears to be yet another way to transfer debts. It may not seem much different than taking advantage of a low interest rate credit card offer for balance transfers. Yet many people have successfully used these loans to pay off their debts. They do offer a low fixed rate, which can provide significant interest savings over the life of the loan. A lower interest rate and lower interest charges create a situation where more principal is paid off each month. Further, because the payments are established on a fixed term, the payments are lower, and the debts are paid off when the loan reaches the end of its term.
While a debt consolidation may sound like the perfect solution to your problem with credit card debt, there are some risks associated with this type of debt management plan. First, immediately after credit card balances are transferred to the new loan, you have a situation where your credit cards are completely paid off. With zero balances, there is a strong desire to keep at least one of these credit card accounts open for emergencies or to use as a safety net. While the plan may be to never use the credit cards, many people over the years have transferred their balances to a consolidation loan and then charged up their credit cards. This creates an even more significant debt issue. Further, it is common for credit scores to decrease slightly after consolidating debts, although this may remedy itself over time if the credit card accounts are closed or if new balances are not added to them.
There are other options available to consider in addition to debt consolidation loans. Those who believe they may not be able to avoid the lure of charging new balances on their credit cards after consolidation may consider debt settlement. Debt settlement is also a great solution for those who owe too much money on their credit cards and cannot enjoy the benefits of a consolidation loan. Through debt settlement from PayingPaul.com, debt balances will be expertly negotiated down. The debt will not be transferred, as is the case with a consolidation loan. Instead it will be written off and balances will be reduced. This can result in a situation where monthly payments are lowered and debts are able to be paid off more quickly.
While a consolidation loan is one solution for debt relief, it is not the only one. Many people may find more benefit in debt settlement and negotiation than through debt consolidation loans.