Learn Debt Consolidation

How Debt Consolidation Loans Work

You are in debt on many levels. You owe 5 or 6 credit cards in varying amounts and at differing interest rates. In addition you must pay the cards at different times during the month and you can only afford the minimum payment. Just paying the minimum payment on a card will assure you of having your interest rate raised and perhaps your credit rating hurt. When you are in financial trouble the last thing you need is for your annual interest rate to be raised.

Your goal is to get a loan at a lower level than most of your credit cards. You pay off the credit cards and now have only one bill a month to pay, and at a generally lower interest rate, which will lessen your monthly payments. Easier said than done in today’s tough credit market. It is very tough to get a loan from a bank, especially if you are having trouble paying your present bills. A home equity loan, if you own your home is variable and might rise. This is not the place to get money to pay off debt. You can end up losing your home.

You might have to do the following for a period of time until your debt lessens and you learn to buy less of things you do not need. If you can get a credit card to accept balance transfers at 0%, transfer the higher balance cards first to this card. You want less cards to pay each month, that is your goal. At the present time a 3% up front charge for balance transfers seems to be the norm. If you can get a new card without this 3% or 4% balance transfer charge, consider yourself lucky.

You will have to pay off as much as you can on this new 0% card before they raise their teaser rates. If you still have considerable money to pay off, search for another 0% balance transfer credit card. Follow this procedure until you are debt free.

Suppose you get a debt consolidation loan. Hopefully, it will be at a reasonable interest rate since the interest rates you get on CD’s are practically zero. Then you pay off all of your credit card debt and car loan if you have an auto loan outstanding. If you bought a motorcycle or boat, this too will go on your debt consolidation loan. After you have paid off your loan perhaps, you will not buy things on a whim and get yourself into this kind of trouble again.

Check for the best rates online and see if you are able to get a debt consolidation loan. The aim of a debt consolidation loan is to cut many payments into one , and that payment at the lowest available interest rate. You are consolidating payments through a loan, hence the name debt consolidation loan.

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