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17.04.2018

Debt Consolidation Loans and Credit Cards

Debt Consolidation Loans are a debt solution which allows you to take out one large loan to repay all your smaller debts. This means that you only have one debt, and one payment, to deal with every month and this can make handling and managing your finances much simpler.

Credit Card Debt

Most types of debt can be solved with a Debt Consolidation Loan as long as you take out enough to cover the payment. It is unlikely that you could use this to pay off a mortgage, or other large, secured payments. But, smaller, unsecured debts, such as credit card debts, can usually be solved using the loan. Similarly, store cards and pay day loans could be solved using a Debt Consolidation Loan.

Your total debt is most important, however, as a very large total debt will mean you need a very large loan, which might be impossible to find, or lead to a very long repayment term. For example, if you try to include a Car Finance Hire Purchase Loan worth thousands of pounds alongside some credit card debts worth only hundreds, then the interest of the new loan will result in you paying significantly more in interest for the debts that were only hundreds of pounds than you would have had to otherwise.

Ultimately, Debt Consolidation Loans work best for people who have a number of small debts that they find difficult to manage, rather than for those who have some very large debts that they cannot afford.

Debt Consolidation on a Credit Card

Another aspect of the Debt Consolidation Loan is a close alternative: the Debt Consolidation Credit Card. These credit cards work in a very similar way. You use the card to pay off all your debts and then pay off the credit card. Using a card rather than a loan has the benefit of being able to pay more flexible amounts to pay off your debt, as long as you are at least paying off the minimum payment every month. This can lessen the amount of time it takes to pay off the debt, which can lessen the amount of interest that is added and reduce the total cost of the debt.

One particular solution that some people find suitable for their debts is to use a 0% interest card. These cards offer 0% interest for a limited amount of time, which can give you time to pay off your debt without any additional charges being added to it. This is only advisable, however, if you are completely certain that you will be able to pay off your debt in such a limited time frame, as the later interest rates are usually very large, and this can considerably add to your debt.

Generally, using a credit card to solve your debt problems is only advisable as a solution for consolidating other, small credit card debts into one payment, or possibly other, similarly small debts. There are many other factors that you should consider before taking this route, such as the ‘balance transfer’ process and associated costs. It is always advisable that you research all the debt solution options available to you thoroughly before making any big decisions.