Credit cards or plastic money has become such an integral part of our lives that it is hard to imagine life without them. Consumer research surveys show that an average American has 4 to 5 credit cards in his/her wallet. And the usage of credit cards has seen an exponential increase over the past few years as more and more merchants are now accepting credit cards as a means for payment. Moreover, e-commerce and online shops are adding fuel to fire. But there is a flip side to using credit cards – “The Debt Trap”.
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Credit cards and the debt trap
The concept of revolving credit (spend now, pay later) leads to debt accumulation, even though it increases the purchasing power at that instant (when you are paying using your credit card). And many people don’t realize that they will need to pay back the money they spend using their credit card.
Here it is worth mentioning that the interest rates on credit card balances are the highest among all types of loans. So, once you build some debt (outstanding balance on your credit card), it keeps on increasing at a very fast pace unless you quickly pay it off in full. And this becomes a hassle for many users. A common situation is where people have numerous liabilities and multiple installments that do not seem to end ever. So, what is the way out? The answer is “Credit card debt consolidation loan”.
Credit card debt consolidation loan to your rescue
Debt consolidation loans for credit cards are a quick and hassle-free way to consolidate a number of small credit card debts into one single large debt. The lender (who provides the credit card debt consolidation loan) pays the outstanding balance on the current credit cards and you pay only one consolidated installment each month to the lender.
Besides debt consolidation and the associated convenience of single monthly installment, a credit card debt consolidation loan can actually lower the total interest amount that you pay over the years (till you close the loan). You might be able to get lower interest rate on the debt consolidation loan and hence be able to pay it back earlier or reduce your monthly payments.
Credit card debt consolidation loan: your options
There are various types of loans that could act as credit card debt consolidation loans for you. Let’s take a look:
1. Home equity loan: A home equity loan is a loan against the equity you hold on your home. Home equity means the amount of ownership that you have on your home (based on the outstanding mortgage principal and current value of your home). A home equity loan can be a good choice to chop off your debt and pay it through easy installments. These loans generally have a low rate of interest (much lower than the interest rates on credit cards) and have flexible repayment options as well.
2. Zero APR balance transfer: One can also opt for a low-rate or a zero APR credit card balance transfer. In this, your outstanding balance on your current credit cards is transferred to your new credit card. Since the new credit card has zero APR, so you are able to ensure that your debt doesn’t increase unnecessarily…and this is the first step towards ensuring a debt-free life.
3. Bank loans: Look out for loan options offered by banks (this includes personal loans too). Many banks these days offer lucrative deals and beneficial programs to help borrowers. Since most banks offer long terms on such loans (and even lower interests), paying your credit card debt becomes much easier.
Credit cards debts not only give you a tough time but can also ruin your credit scores in the long run. Thus it is advised to close these debts as soon as possible. This does not mean that you need to settle for the first credit card debt consolidation loan option that comes your way. Search for the different options available in the market and choose the one that best suits you.