How a Credit Consolidation Loan Can Help You Become Debt Free

Can a credit consolidation loan help you become debt free faster?

If you are like many people, you have too much credit card debt and not enough income to make the payments. Of course you know you have overspent on goods and services that looked good when you agreed to buy them. But, now when the bills come due, it’s hard to make payments.

The major factor in making your credit card debt unmanageable is the high interest rates. Most companies charge nearly 20% per year for credit card debt. Next to payday loans, credit card debt carries the highest interest rates of any debt.

Current statistics indicate that the average family with credit card debt owes $14,743 on their credit cards. If your credit cards have an average interest rate of 20%, that means your debt costs you $245.72 a month in interest charges.

You need to pay $245 a month just to stay even. Many credit card companies make your minimum payment equal to the interest you owe plus 1% of your balance. So, for the average debt of $14,743, you would need to pay the interest of $245.72 plus $147.43 or a total of about $393. You could buy a great 32 inch high definition TV for that amount.

Consolidation Loan to Pay Off Debt Faster

A consolidation loan is a new loan, often for the full amount of your credit card debt, but at a much lower interest rate. And, the interest rate is the real “killer” when it comes to credit card debt.

Say your new loan for $14,743 was for 8.25%. The amount of monthly interest would drop dramatically from $245 to around $101. And, if you paid about $300 a month, you would pay off your debt completely in only 5 years.

You can see there are clear advantages to a credit consolidation loan. Among them are:

- Lower payments. In this example, the minimum payment for your credit cards initially was $393 while the consolidation loan required only about $300 a month.

- Debt free sooner. With the consolidation loan you will be free of debt in only 5 years while following the rules of the credit card company and making minimum payments, you would remain in debt for nearly 25 years.

- Less expensive. With the consolidation loan you pay a total of $21,642 to become debt free while making minimum payments to the credit card companies would cost you $37,669 to become debt free.

Live Within Your Means

Now, both these options assume you will not increase your debt further by using your credit cards to make additional purchases.

While credit cards are not bad, the misuse of them can lead to excessive debt. And over 4% of credit card holders are behind in their payments by at least 60 days. This shows that it’s hard for many people to use credit cards wisely.

Until you pay off your credit consolidation loan it would be best not to use your credit cards. And, certainly not in the way you have used them in the past.

A credit consolidation loan can help you become debt free, but you must lean to use credit wisely to stay debt free.

Incoming search terms:

• credit consolidation
• consolidation loan help your credit
• credit card debt statistics for 2011-2012
• credit consolidation free
• help makes a difference
• how to become loan free
• loans to help you become debt free
• once you have consolidated loan can you open credit card