Credit Cards Plus

Consolidation loans are often suggested as a way to lower credit card debt.  Although it can be a good way to control credit card debt if done at the right time, it has a number of hidden dangers.

Consolidation loans are unsecured or secured loans that allow a person with a large number of debts to put the debts into one loan where one company can be dealt with rather than a number of creditors.  It takes away the frustrating feeling that there is a juggling act going on with debts.

One of the advantages that consolidation loans have is that they can be paid on the same day each month, and that this can be co-ordinated with the day on which a salary is paid.  This will mean that the money comes out straight away and that a person knows what money they have to use throughout the month.

Consolidation loans also have lower interest rates than credit cards because the consolidation loan has lower administrative costs as it cannot be increased or paid off as easily as credit cards.  Some loans are secured against a home, which means they are more likely to be paid off and so the risk to the lender is lower and the interest rate can be lower.

As well as lower interest rates the payments may also be lower as the loan is extended over a number of years.  However this increased length of the debt means that more interest is charged over the length of the loan.  For many consolidation loans the interest cost over the length of the loan will be higher than with credit cards despite the fact that the interest rate is lower.

A consolidation loan also raises the amount of credit that is available to a credit card borrower as the cards are now paid off and still in operation.  It is quite common for a person to get a consolidation loan and within a year to have as much debt on their cards as they had previously.

Consolidation loans are often secured against a home.  While this means that the loans will be cheaper, it also means that if the person falls behind on the loan then they could lose their house.  Overpayments are also harder than they are with credit cards, although some loans do allow them.

A consolidation loan is a good idea when there has been a pattern established of paying off credit cards.  However it should not be done at the start of a campaign of paying down debt.