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Solving a problem with another problem has never been helpful for most people. When you come to think of it, this is how credit card consolidation loans work. The purpose of applying for credit card consolidation loans is to combine or consolidate multiple loans into one single loan in order to reduce the interest rates. Indeed, it sounds helpful but when you really dig deeper onto these loans, it can only create another more serious debt problem. How is this so?
Let us start by the fact that applying for credit card consolidation loans does not mean you have already paid all your debts, rather it only means you are applying for another debt just to pay for your previous ones. It is not a cure, but a simple intervention to take away other debts and at the end of the day, the fact remains that you still have debt.
Number one disadvantage of credit card consolidation loans is the risk of losing your assets. Because these loans are still debts that you have to pay, you will need to present a collateral to prove that you can pay for the combined debt. Presenting something as collateral is expected, and if you fail to pay for the loans, you are most likely to lose your house and or your properties that were used to secure this new debt. Another important drawback that you have to understand about these loans is the consequence you will have to face when you lower your monthly payments to the loan. Once you decide to pay a bit lower every month, the interest rate will be higher plus the duration of time which you will be paying will be a lot longer. This is never a good news because it only means you will have to deal with your debt a little longer than expected.
Next disadvantage of consolidation loans is the difference on the interest rates. There are some who say that the interest rate of credit card consolidation loans is very low. This is only true for those who have good credit history. If you have a very bad credit background then the interest rate for you in a consolidation loan is higher. It is therefore not advisable for those who have bad credit history to apply for this kind of loan. The irony is that most people who are desperate to apply are the ones who have the worse credit history.
Instead of solving a problem with another problem, why not try going for a debt solution that does not involve another debt? If you are willing to pay for your debts, the first step is full awareness. Be aware of all your debts. You can list all these and add the total amount of money you need to earn so that you can repay all debts.
Once you are aware of how much it will cost you, set realistic goals. Given your monthly salary and the bills you have to pay, set a goal to be able to reach a certain amount every month dedicated to pay your debts. You don't expect to be able to pay for all your debts in a snap. In line with your goal, have discipline to save money for your debts. See to it that you only spend on the things you need and not the things you want. This will be the rule until you've reached complete payment. Through these things, you can slowly pay your debts without creating another problem.