Credit Card Debt Management Through Debt Consolidation Loan

Credit card debt trap is a vicious cycle. Many a times, when a user finds himself unable to payoff a credit card debt and upset with the rigorous upset procedures of the credit card company, he looks at escaping the situation by transferring his balance into another credit card with a higher balance and a new lender. This is only a temporary solution to stop the harassing collection procedure and not a permanent solution to the problem. Such people often find themselves in the same situation, only with a new lender this time. A permanent solution would be to pay off the credit card lenders completely by some other means. Users who get into this situation often do not have enough money in their banks to pay off thousands of dollars on their credit cards. Hence in such a situation, a debt consolidation loan is the ideal solution but we do have some other tips that can help you out of this penible situation.

What is a debt consolidation loan?

In a debt consolidation loan, you are able to collate all the outstanding balance you owe on various credit cards and other loans into one loan with a lower interest amount. There are 2 types of debt consolidation loans available in the market today.

- Unsecured debt consolidation loan - Here you do not need to put collateral (like a house or a property) with a lender. These loans are available anywhere between $2,000 and $50,000 for repayment terms of 1- 5 years. However, the basic disadvantage of unsecured loans is that these have a higher interest rate than secured loans.

- Secured debt consolidation loan - Here the lender offers you a loan against some collateral, usually a house or an immovable asset. Because this loan is secured, the lender is able to offer much lower interest charges on the loan.

Benefits of credit card debt consolidation loan:

#1: The first benefit is the difference in the rate of interest between a credit card and a debt consolidation loan. A credit card company charges you anywhere between 14% and 21% of monthly interest charges. These are calculated on a daily compound interest basis, and usually eat up a large chunk from your monthly payments. A debt consolidation loan on the other hand is offered at much lower interest charges. If you are taking an unsecured loan, you can find lenders offering anywhere between 10% and 12% of monthly interest charges. If you are taking a secured loan, the monthly interest charge can be as low as 7%- 9%. In both cases you would be paying much lesser amount of interest in a debt consolidation loan than a credit card debt.

#2: If you have multiple credit cards from multiple lenders a debt consolidation loan will give you the basic advantage of having to deal with just one lender. You do not need to remember all the different payment due dates with different lenders.

There are many lenders offering great packages in debt consolidation loans. You can customize your package depending on your repayment ability. For those who feel trapped in a credit card debt cycle, this is a great solution to prevent bankruptcy.