How to Use Debt Consolidation to Lower Your Monthly Payments
by Ellise Walsh

The past several years has seen a virtual explosion in the use of credit cards. While credit cards used to only be accepted at certain stores, these days credit cards can be used virtually everywhere, from the gas station to the grocery store to even the fast food outlet down the street. While this revolution has certainly made life much more convenient, it has also made it much more difficult for many people to manage their credit properly.

As any user of credit cards knows, the interest rates on credit cards tend to be quite high. With interest rates on credit cards running as high as 18% or even more, it is all too easy to get caught up in a never ending cycle of interest rates and late payment fees. At the minimum payment, it can take decades to pay off even a small balance, so if you have a lot of credit card debt, refinancing that debt at a lower rate is a financial necessity.

There are several options when it comes to debt consolidation of credit card and other high rate loans. There are personal loans that can be used for this purpose. The consumer simply takes out a personal loan to cover the outstanding balance on his or her credit cards then uses the money to pay off the loan. This strategy can save the consumer lots of money on interest and other associated credit card fees. Even though the interest rate on personal loans will vary widely according to the consumer’s personal credit history, the rate is likely to be far lower than the interest rates on the credit cards that are being paid off.

Homeowners also have the option of using a home equity loan to retire their high interest debt and consolidate it at a lower rate. The interest rates on home equity loans are often much lower than those on personal loans, therefore the potential for savings is that much greater. In addition, the interest on a home equity loan may be tax deductible, whereas credit card interest is not. The downside of the home equity loan strategy, however, is that the lender is pledging his or her home as collateral for the loan, and in the even of a default the home could be at risk. It is therefore vital to ensure that your spending is under control ant that a strict budget plan is in place before using a home equity loan for debt consolidation.



Credit Counseling & Debt Settlement—We’ve also written articles about these alternative forms of debt repayment. You may want to look into each of these to see which one is right for you and your current situation.

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