Do It Yourself Debt Consolidation

By: Mark Shead

Debt consolidation usually involves finding a bank or lender who will give you a loan to pay off all of your other loans at a lower interest rate. Often times the pay off time is much longer. For example, you may end up consolidating two five year car loans into a 15 year debt consolidation loan. The added time lowers your payments, but in the end you can end up paying much more.

Credit cards make money when people don't pay off their balance at the end of each month. Many times the interest rates they charge are well over 20%. It is easy to see how they can make so much money--even if there is a high number of people who are unable to pay because the interest rate is so high.

Since the interest rates are so high, the credit card companies need to do some type of special incentive to try to attract people to use their card. Sometimes they create sky miles programs. Sometimes they create benefit reward programs or other special perks. Many credit card companies create a special deal designed to lure customers to their card. The types of customers they want are the ones who carry a balance, so they create programs designed to attract those types of people. What people who carry a large balance are looking for is a lower interest rate.

Many credit card companies offer special introductory rates of 0% interest or other low rates. This is designed to attract consumers who have a large balance because the companies know they are the most lucrative in the long run.

You can use these offers to make a simple short term consolidation loan. Simply sign up for a new credit card with a lower interest rate than your existing debt and then transfer the balances from your other loans to the new credit card.

Most credit card companies are glad to help you do this because they know once the introductory period is over, they will charge you a higher rate and make up for anything you gained at the lower interest rate. If you are careful and payoff the credit card (or move the debt elsewhere) you can take advantage of the rate without ever having to pay the high interest. Credit card companies know that most people will just leave the money there and pay the high interest, so they make a lot of money by offering these types of programs.

This isn't a good long term strategy, but it can work effectively as a short term method of debt consolidation. Just be very careful to keep your options open because you don't want to get into a situation where you are trapped in a high interest rate with a credit card lender.

Without a solid plan for getting out of debt, this type of approach can be very detrimental because it can put you in a position where you are paying very high interest on a loan without the ability to transfer that loan to a lower interest rate. If you have trouble controlling your spending, you should probably avoid this type of set up because it will probably haunt you for years to come. It is easy to spend money and many people find it even more difficult to control their spending once they get a little relief--even if they know it is just a temporary low interest period.

The best way to get out of debt is to cut your spending and put every penny you can toward paying off the money you have borrowed. There are times when it makes sense to move money around to lower interest loans and there are times when it may make sense to move the debt to 0% interest credit cards, but your overall plan needs to be to pay off the principle as quickly as possible. If you get too focused on just bouncing money around from low introductory rate to low introductory rate, you are only going to be able to keep it up so long. In the mean time your debt will grow and it will be even more difficult to get out of debt down the road once you decide to get serious about paying off your credit cards and other debt.

Good financial decisions are not something that happens by accident. Most people are not unlucky financially--just unwise. You have to make a conscious effort to get out of debt. Take advantage of low interest rates in a sane responsible manner, but don't for get your real goal is to pay off your debt entirely.

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