Debt reduction credit card consolidation

A common method of reducing the burden of credit card debt, is to replace all your existing credit card and store card accounts with a new loan. This would pay off all your outstanding amounts at the same time, and leave you with just one monthly payment that should be less than the sum total of the monthly payments on all of the cards you are replacing.

This type of borrowing is referred to as a consolidation loan. It could be arranged as an unsecured loan, but is quite often arranged as a loan that is secured against your property. This means that if you default on future payments you could be putting your home at risk.

With a consolidation loan, once the financial pressure eases because you are repaying a smaller amount each month, it is easy to become complacent and think that you can start using your cards again, but that would be an enormous folly. Your original card debt hasn’t gone away, it’s just easier to repay each month.

For a consolidation loan to be successful, you really do need to cease using your credit and store cards, and to close the accounts, to prevent the temptation to start spending on credit all over again, You could keep just one credit card to cover essential monthly purchases, but it would be sensible to repay the whole amount borrowed when you receive each monthly statement. If you don’t, then you are living beyond your means, taking on more debt and storing up more potential problems for the future.

Credit card debt should be considered as short term borrowing, so if you decide to arrange extra borrowing secured against your home as a means of clearing this debt, you are converting it to a long term debt. You will probably be paying more for it over a mortgage term than if you cleared it within say, a two year period, but if the lower monthly outgoing coupled with a disciplined attitude on your part to spending less, and not borrowing more means that your monthly cashlow improves, it could be right for you.

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