A growing number of consumers have debts they cannot pay, as it is just too easy these days to use a credit card instead of hard currency. Paying late can make problem debt worse, as credit card companies don't hesitate in adding late fees and penalties to the balance the debtor already owes. Via repeated use and carelessness, the debt piles up and soon the borrower owes more money than he or she can reasonably repay. As credit card issuers are now requiring minimum monthly payments of about four percent of the outstanding balance, many consumers are just unable to lower the amount that they owe. What can someone do in this situation?

Borrowing more money when you already owe more than you can take care of may strike you as rather strange and not especially productive, but it can be effective. The solution could be to borrow more money via debt consolidation.

Consolidating debt involves borrowing more money not to add to the existing debt, but to replace it. It's no secret that credit card debt is costly; the average rate of interest is about 19% per year. There are a number of ways to take out a loan at fair interest rates, including unsecured personal loans and home equity loans. The savvy person will obtain a new loan, like a home equity loan, in an amount that is equal to the amount of all of his present debt. If a debtor owes $25,000 on three different bank cards, the solution would be to borrow the same amount and pay off the bank cards. A home equity loan might have an interest rate that is only half of the rate charged by credit card companies, resulting in a much more affordable payment. The borrower will have the convenience of paying less interest and making only one payment each month. The debtor saves cash by paying less interest and has fewer payments to make, resulting in a win-win situation.

Consolidating debt is not a perfect solution, however. Failing to secure a loan at a favorable interest rate will only add to the trouble. Neglecting to make the monthly payments on the consolidation loan will put the borrower in trouble again. Using bank cards again after paying off the outstanding balances can actually make the situation worse, as the capacity for debt is now much higher than it was previously.

If utilized wisely, a new loan can help an overly burdened consumer out of financial trouble, even though it seems like the last sensible thing to do. as borrowing money is the cause of the problem. The benefits of combining bills with a single loan are significant, but the pitfalls are dangerous. By using a financial tool called debt consolidation, debtors can borrow more money and ease their debt burden at one time. Consumers with financial problems are urged to seek financial assistance or credit counseling before combining their bills with new loan. Debt consolidation is not something to jump into without first giving it a bit of thought.



©Copyright 2007 by Retro Marketing. Charles Essmeier is the owner of Retro Marketing, a firm devoted to informational Websites, including End-Your-Debt.com, a site devoted to debt consolidation, credit counseling, payday loans and personal bankruptcy.