According to a February 2010 Nilson Report, there were 576.4 million credit cards in circulation at the end of 2009. The total United States revolving debt, which is 98% credit card debt, was $864.4 billion as of January 2010, according to the Federal Reserve. The average household has $16,007 worth of credit card debt. Fitch Ratings reports that the U. S. Credit card default rate is currently 11.37%. It appears that more than a few people need some help with bad debt consolidation.
Debt Consolidation
Quite simply, debt consolidation is the combining the balances of several credit cards into one lump sum of debt in a consolidated loan. The debt consolidation loan offers a lower interest rate than the high-interest credit cards that you will probably never pay off because of the high interest rates. Clearing your high-interest cards is the first thing you must do to begin taking control of your finances.
Consolidation Loans
A consolidation loan is an unsecured loan made by a bank or low-interest credit company that has a fixed monthly payment and interest rate. Unsecured means that you do not have to put up any type of collateral in order to qualify for the loan. With this type of loan, you will be able to count on having the same payment month after month making it much easier to budget your money.
Borrower Beware
You may have heard of companies who will handle all of your financial problems and deal with the credit companies for you. This sounds very good; however, these companies typically charge 10% of your monthly payment to do this. So, if you had a $300 payment, the company would charge you an additional $30. This could be applied to your payments if you handled all of your finances yourself.
Low-interest balance transfers are another thing to be wary of. They are not always as good a deal as they may appear at first glance. The initial interest rate looks fantastic, often 0%, but when does that end? Find out what the interest rate will be once the initial rate has expired. That rate may be just as bad, or worse, than your initial credit card interest rate.
When you are investigating bad debt consolidation options, remember to check your emotions at the door. It is very easy to get taken advantage of when you are in a desperate financial situation and emotions are running high.
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