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Should I consolidate my credit cards?


Additional Credit Card Debt Consolidation Options
There’s more than one way out of credit card debt. When considering consolidation, look at other options, such as a home equity line of credit or an unsecured line of credit.
There’s more than one way out of credit card debt. When considering consolidation, look at other options, such as a home equity line of credit or an unsecured line of credit.
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Balance transfers aren't the only available option for consolidating credit card debt. For some, consolidating credit card debt into a debt consolidation loan or rolling credit card debt into another loan, such as a home equity loan, home equity line of credit (HELOC), or an unsecured line of credit (ULOC) may be more sensible -- or more feasible, as the best balance transfer offers are usually reserved for people with very good credit scores.

Balance transfers move your debt from credit card to credit card, but in the end it's still credit card debt, and credit card debt is considered unsecured debt. Unsecured debt means that there is nothing held as collateral. Secured debt, on the other hand, basically means that you borrowed money against something. Your mortgage, for example, is secured debt; if you default on your mortgage payments the bank can place a lien against or foreclose on your house. There are pluses and minuses to rolling credit card debt into a secured loan. For example, while you may be able to claim the interest on your home equity loan as a tax deduction, which is a plus, if you have trouble paying the loan, you risk losing your home, which falls squarely in the minuses.

Debt consolidation loans may be a good solution for those looking to consolidate all of their unsecured debt, including credit card debt and store card debt, into one secured loan. Debt consolidation loans usually offer a lower, more manageable monthly payment schedule but they come with a price, literally -- that lower monthly payment is usually a result of a longer payment period, which may mean you'll end up paying more overall.

In the end, no solution is perfect -- within two years of opening a loan as the solution to paying credit card debt, 70 percent of us will find ourselves with the same or more debt [source: McCune]. Alternatively, and if it fits your budget, instead of consolidating credit card debt focus on your payments: Make every payment on time, pay more than the minimum payment if possible, and pay down the card with the highest interest rate first to make the biggest impact.


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