Basics of The Credit Card Consolidation Loan
At 19, Amy Galliano (name changed) ought to be living footloose and fancy free. A sophomore of a reputable West Coast college, she is popular among her friends, a fairly decent guitarist, and member of a voluntary conservation association. So what’s the fly in her ointment? Well, she’s in debt to the tune of $3,500, and getting sucked in even deeper as her spending wildly surpasses her budget. “I’ve tried everything – from debt counseling to balance transfers – but the temptation to use plastic is insurmountable,” she laments.
Amy is a minute cog in the vast wheel that is the USA’s credit card debt trap. According to statistics released in 2004-05, the average American household carries nearly $8,000 in credit card debts. There’s more: the average cardholder has 2.7 bank credit cards, 3.8 retail credit cards, and 1.1 debit cards, which makes 7.6 cards per cardholder. Recent Federal Reserve studies show that 43% of U.S. families spend more than they earn. More specifically, Americans spend $1.22 for each dollar that they earn.
The problem is compounded because the average interest that credit card companies charge is around 12-15%, which means that if a card holder does not restrict his/her credit card usage, s/he runs the risk of a ballooning interest rate that cripples the monthly budget. As Amy says, “I just can’t seem to get the debt collectors off my back.”
It is in such a scenario that a credit card debt consolidation loan is most required. As the term suggests, this loan enables the borrower to consolidate all his/her debts under one umbrella and either pay off his/her debts individually, or pay the debts through the new lender.
Malcolm Khan, 31, who switched residences twice to avoid being harassed by creditors owing to his huge credit card loan, was wary of a credit card debt consolidation loan initially. “I didn’t want to fall into a double debt trap,” he admits. Once his financial consult persuaded him to avail a debt consolidation loan, however, Malcolm saw his situation improve drastically. “At one go, I was paying a lower monthly rate of interest and saving nearly 40% of my earlier outgo,” he says, “though given my relatively wobbly credit history, I was asked to furnish plenty of evidence to prove that I was serious about repaying the loan.”
A credit card debt consolidation loan is available in two forms: secured and unsecured. With a secured loan, the borrower needs to keep some sort of security with the lender, in exchange for which the latter lowers the rate of interest. For unsecured loans, the lender requires no collateral, but the borrower is required to furnish proof of a steady income and employment.
“My consultant also pointed out to me that alongside the monthly payment on the new loan, I needed to improve my money management techniques to make sure I stayed out of trouble in future,” says Malcolm. Another crucial factor is to deposit extra payments on the principle to stay ahead of your payment deadline.
Remember: credit card debt management is an integral part of our lives today, and credit card loan consolidation is your last line of defense.
