Thursday, 26 June 2014

American Household Debt Keeps Rising – Is This The Best Time To Consolidate Debt?

Posted at  03:45  |  in  Debt

As per analysis based on the Federal Reserve statistics and some other federal data, the current average household credit card debt stands at $16,192, which is the result of a couple of households that are deeply in debt. Among all the indebted households who are weighed down with high interest loans, majority of them owe the highest amount on their credit cards apart from their mortgages and student loans. The habit of spending more than their affordability is now pushing the families deeper into debt. While more and more people start getting stressed about their soaring credit card debt and drooping credit score, the question arises whether or not credit card debt consolidation is the best way to consolidate debts.

Which is the best way to consolidate credit card debt?

Most often, debt consolidation seems to be the ultimate way of combining debt and restoring financial normalcy. The pitch of combining your balances into a single loan and making a single monthly payment always appeals to the struggling debtors. But as we know that there are multiple ways in which we can consolidate debt, debtors get confused about which option to choose in correspondence with their present financial situation. While there might not be a single best way to get rid of debt, you can glance through some options.

  • Taking out a personal loan: Perhaps the most common option that debtors have in mind is to take out a personal loan. The most ideal solution to high interest credit card debt is to take out a new loan with lower rate and convenient monthly payment and use it to repay the high interest debt. This can indeed be a great strategy if you can use it in the right manner. However, if you don’t have a moderate credit score, taking out a personal loan might as well become a challenge. Huge debt level and credit cards achieving their credit limits can bar you against obtaining new credit. Hence, if you get a personal loan with a low rate that allows you to repay your loan throughout a period of 3-5 years, this can be a worthy option.

  • Credit card consolidation through a new card: Similar to a personal debt consolidation loan, you can also get a low rate credit card and use it to transfer your high interest balance. But watch out for the balance transfer fees that can unnecessarily increase your monthly payments if you don’t take care of it. Remember that the teaser rates on the balance transfer cards don’t last for long. So, you should make sure that you transfer the entire balance into your new card until the teaser rate is valid. Don’t forget to read the fine print of the card as this is the place that carries the most important information.

Credit card debt is the biggest menace that has been disturbing the young and the older generation. While debt can be useful for some people, whether or not it’s a good thing is certainly a topic of debate. High consumer spending would play a positive role for the US economy but the consumers do have to be careful about their personal debt ceiling.

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Jimmy Simond is founder of he share his immense knowledge of finance in this blog. You can follow him on Google+.


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