Should You Consolidate Your Credit Card Debt?
Consolidating Debt not Always the Smart Move
Mar 5, 2009
According to CardWeb.com, a publisher of credit-card information, the typical U.S. household with at least one credit card is burdened with nearly $9,200 in credit card debt.
Facing that much debt can be extremely stressful. It can also be hard to pay off, especially in today's economy when many cardholders have either lost their jobs or feel that they may be out of work at any moment.
To help eliminate this debt, many cardholders turn to debt consolidation. It's easy to see why: Turn on the radio, flip on the TV or log onto the Internet: Debt consolidation companies will be advertising their services.
But just because their ads are everywhere, that doesn't mean that debt consolidation is right for every consumer.
What Debt Consolidation DoesDebt consolidation doesn't eliminate a person's debt. For people who hold large amounts of debt on multiple credit cards, though, it is a way to potentially lower interest rates on outstanding balances. It's also a way for cardholders to reduce the number of creditors to whom they owe money.
The debt-consolidation business, though, is not one without controversy. Some companies working in this field have earned reputations for taking advantage of consumers who, under pressure from their financial woes, are not making the soundest of decisions.
It may be hard for debt-burdened consumers to do, but the key to successfully managing debt is to move cautiously. Cardholders should consider several factors before making any moves to consolidate their credit card debt.
The Case for Debt Consolidation
Cardholders should first decide whether they actually need to consolidate their debt.
Consumers should keep in mind that though credit card debt can scuttle their financial health, it is not the worst kind of debt they can have. Because of this, financial experts warn consumers against taking out home equity loans to pay off their credit cards. The reason for this is simple: Cardholders may eventually default on their home equity loans. When this happens, they stand a very real chance of losing their home.
That is an extremely serious consequence.
This is why consolidating credit-card debt into one payment with, hopefully, a lower interest rate is the option that many cardholders turn to.
Cardholders should first, though, should take a close look at their own spending habits. They certainly don't want to consolidate their debts, pay them down and then, once the pressure of owing so many high balances is gone, fall back into bad habits and run up high levels of credit-card debt again.
Consumers who feel that this might happen to them might do better to work with a financial counselor who can address their unhealthy spending habits.
You Can Consolidate Your Credit Card Debt on Your Own
It is possible for cardholders to consolidate their credit card debt without the help of any outside professionals. They just have to move their existing credit-card balances onto one single card that features a lower interest rate.
Cardholders, though, should do their research before consolidating debt on their own. Many credit cards feature low interest rates for just a short introductory period. After this period ends, the new rate is often one that is just as high or higher than the rate the cardholders had left behind.
Working with a Debt Consolidation Company
There are countless numbers debt counselors who can help consumers consolidate their debt. But before cardholders sign up with one, they should first contact the National Foundation for Credit Counseling.
The non-profit foundation helps consumers manage, reduce and erase their debt. Cardholders can visit the organization’s Web site to locate an approved debt-counseling organization in their area.
Consumers can also call the National Foundation for Credit Counseling at 1-800-388-2227.
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