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When you are trying to juggle several different debts while still having enough money to see you through to your next pay check, it can be easy to slip into unmanageable debt. More and more Canadians are turning to debt consolidation to dig their way out of a financial hole.
Not all debt consolidation options are the same, the type of credit card consolidation which is appropriate for a consumer depends heavily on their personal situation and the amount of debt that the consumer is carrying on their credit cards.
Home Equity Loans
Banks and financial service companies have put a lot of weight behind marketing home equity loans as a way to consolidate debts for the past ten years. However, the best financial advisors and debt experts warn consumers against such practices.
Consumers are warned that leveraging your home's equity is not something that should be done without a huge amount of thought and some careful research, even although it is tax advantaged. The reason for exercising so much caution is that if the consumer defaults on a credit card debt they risk damaging their credit score, but if they default on a home equity loan they may well end up losing their home. Most consumers would probably agree that a bad credit score is the lesser of the two evils.
Credit Card Consolidations
Another way to go about consolidating credit card debts is to look for the leading credit card offers which can often provide very low or even zero interest rates on balance transfers. This is a very straightforward method of consolidating credit cards debts.
The consumer can transfer balances from high interest accounts to low or zero interest rate cards and save hundreds of dollars every month which they were previously paying out in interest fees. If the card is only offering low rates for an introductory period, the consumer can always repeat the process after the offer is over using new cards.
Those sort of offers are always available from a few credit card issuers at any given time. Consumers often develop a misguided sense of loyalty or affinity to a long standing credit card, or to a credit card which offers rewards or additional benefits.
However, if that issuer is charging a high rate of interest that is making your debt unmanageable, then it is time to put an end to that loyalty. The credit card market is far too competitive with a huge choice of credit cards, many of which offer 0 percent interest on balance transfers, for consumers to dedicate themselves to one high interest card out of loyalty.
Taking the First Step
One of the most essential steps in getting out of credit card debt is to refinance any high interest balances and get lower monthly payments. Once less interest is being paid, financial self discipline can be put into action to begin paying more towards the debts allowing them to be eliminated much faster.
Using credit cards to consolidate debts can be a great way to achieve this as it offers the opportunity to remove, or at the very least greatly reduce, interest payments allowing consumers to start making their way out of unmanageable debt. When credit card balances begin to mount up, the worst aspect is that when making the minimum payment to the account, the amount owed never gets any smaller.
The minimum payment will barely cover the interest applied to a large balance carried on a high rate card. In addition to transferring balances from high rate cards to low interest or 0 percent balance transfer credit cards, you can remove the temptation to use the high interest card again by cutting it up. The same goes for store cards which may tempt you to make unnecessary purchases, cut them up so that the temptation is no longer an issue.
Once you have taken the first steps towards clearing your credit card debts you will most likely begin to feel much more positively about your situation. Taking control of financial problems and facing them head on is one of the keys to getting out of debt.
In conclusion, using credit cards to consolidate debts can be a simpler and less risky option than a home equity loan. However, consumers must keep in mind that it is not the solution, but rather one step in a series of steps which will allow financial freedom.