Have you ever wondered if a credit card can help you reduce your debt? Let’s find out if this is possible and the best way to go about doing it. Reducing your debt is a good goal and one that will have a positive impact on your financial future.
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Debt is a problem for many people, but debt does have benefits as well. It allows you to establish credit when you’re first starting out. However, too much debt can keep you from reaching your goals in life.
What is debt consolidation?
Debt consolidation is essentially borrowing money to pay off existing debts that you owe. The trick is to borrow money to do this at a lower interest rate than you are paying on your current debt. Very often debt that has no collateral to secure it can be paid off with new debt that is secured by real assets. The lower interest rate obtained on this new debt is due to the fact the lender has something tangible to liquidate in the event of a loan default.
A debtor at risk for bankruptcy can often find a debt consolidating company that can arrange for new debt at a discount. They lenders would rather have something as opposed to nothing, and this will usually involve securing the new debt with assets. Debt consolidation companies sometimes make fraudulent claims about what they will be able to do for you, The Federal Trade Commission (FTC) has a website that has good pointers on dealing with these firms.
A credit counselor can negotiate such arrangements where appropriate to the circumstances. The National Foundation for Credit Counseling is a good source for objective information and educational materials on lowering your debt. You can see what they have to offer at their website. Your bank may have a service that can help with this as well, be sure to check with them to see what they offer. This FTC website also has helpful information you can use to help reduce your debt load.
Can I use credit cards to shrink my debt?
Yes you can, using a new card to consolidate credit card debt is one of the most common ways most people lower their debt. The others are home equity loans, other secured banks loans, and negotiated settlements arranged by a debt consolidation company. The key, of course, is to find the right card company and the best overall deal.
What should I avoid when using credit cards to reduce my debt?
Paying too high an interest rate on a credit card should always be avoided. You should be able to find a zero percent introductory interest rate on a new credit card, so avoid a new card that has a high rate to start with. Keep in mind that the zero percent credit card interest rate will be temporary, often for the first year, so find out what the rate climbs to after that period. Depending on how much the card will carry, you may even get a better than advertised rate on it.
You should always ask if they have any special offers that may apply to you and best fit your situation. You should also be sure to compare the interest rate charged on new purchases versus what they will charge you for any balances you transfer over to the new card.
You should avoid using any credit card company that has too many complaints from its customers. Use the Internet to search the company name and add the word “complaints” to see what other people’s experiences are with a particular company. Some complaints are to be expected, look or a trend in a particular area.
What are good features I should have in a credit card I’m using to reduce my debt?
Immediate payment of all debts that will be covered by the credit card is important, you need to lose those monthly payments quickly and start on the new card’s payments.
Make sure the balances are transferred in the same month that you sign up for the new credit card. Make sure the rate on the transferred credit card balance is low and stays low.
Use a reputable credit card company.
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