Is Credit Card Debt Consolidation the Right Move?
The TV commercials and magazines for credit card consolidation are borderline mesmerizing.
* “Debt relief is just a phone call away!”
* “Stop paying your debts today!”
* “Erase your high interest rate! Call now”
Every year, millions are lured in with high hopes. And it’s easy to understand why.
With so many individuals now carrying high credit card balances, never before has the prospect of credit card consolidation appeared more appealing. Yet, despite the glorified status lenders have bestowed up them, credit card consolidations can quickly turn a financial problem into an irrevocable financial crisis.
The promised “quick fix” of debt consolidation is powerfully tempting. But the slippery slope of consolidation loans can introduce a variety of other threats to one’s fiscal health.
Among the gravest dangers:
Small Fees Become Big Expenses
Consolidating debt isn’t free. And the costs (hidden or straightforward) can be significant. Securing a new loan or consolidating old ones may not only incur administrative and processing fees, you may also be penalized for paying off your balance early (assuming, of course, that you could). Even worse, consolidation loans are frequently secured against one’s home, which subsequently leads to legal fees and a host of other ancillary expenses. There is no shortage of “small fees.” When totaled, it’s a heavy price tag for credit card consolidation.
The Balance Transfer Catch
Balance-transfer opportunities are a dime a dozen. And although they work for the short term, zero or low rates only last for a limited period of time. If you think you can repay the full balance during that time but ultimately can’t, you may soon end up paying a higher rate on your outstanding debt than you were before the consolidation.
Stranger Danger with Debt
As children, we were frequently told never to talk to strangers. Some credit lenders should have been included in those maternal warnings. Because numerous debt consolidation providers make substantial commission on balance transfers and loan consolidations, there is no shortage of misleading advocates for consolidation trying to squeeze even more money from your pockets.
The Risk Factor
Taking out consolidation loans or having to switch balances back and forth leaves a blemish on your financial history. After a substantial amount of this sort of activity is recorded, it will portray your financial responsibility in a negative light and leave you a “high-risk” candidate for financial products and services in the future.
Does Credit Card Consolidation Make Sense For You?
It depends.
If anything is easier to get into than debt, it’s more debt. And, without exception, this is ironically the gravest danger posed by credit card debt consolidation.
Unlike a debt consolidation loan, which is typically secured debt, credit card debt itself is unsecured debt. Once your present balances are consolidated through a loan or multiple balance transfers, your remaining credit cards return to having a zero balance with ready access.
If that zero figure remains unchanged throughout your entire repayment process on consolidated debt, it might be in your best interest to seek a credit card consolidation opportunity. If, however, you have any inclination that you will soon max-out your credit cards again and abuse your consolidation process as a renewed license to spend, avoid this financial alternative at all costs.
Photo by danesparza
Related posts:
- The Pros and Cons of Consolidating Your Credit Card Debt
- How To Tackle Credit Card Debt
- The Dark Side of Debt Consolidation
- How to Make Your Credit Card Debt History
- How NOT To Get Screwed on a Debt Consolidation Loan
Leave your response!