Consolidate to be rid of those high rate credit cards

Credit card debt consolidation is big business, as evidenced by the amount of advertising that is on the airwaves and online. It shouldn't be surprising, with the average Canadian household being deep in credit card debt. Still, not all credit card debt consolidation options are equal. It all depends on your personal situation and the magnitude of your debt.

For the past decade banks and financial service companies have heavily marketed home equity loans as the best way to consolidate debt. Leading financial experts caution that leveraging your home's equity, although tax-advantaged, is not something to do without great consideration. If you default on a credit card balance you might hurt your credit rating, but if you default on your home equity loan you can lose your home - not a situation you want to learn about firsthand.

In order to consolidate credit card debt, it can be helpful to first look toward leading credit card offers that can provide low interest or 0 per cent balance transfer options. This type of straightforward consolidation from one or more high interest rate credit cards to one better rate credit card could save hundreds of dollars per month. Many people develop a sense of loyalty to their first card or one that offers some type of reward or benefit. But if the issuer has begun charging high interest rates, the loyalty should stop there. There are too many options in the marketplace with low interest or 0 per cent balance transfer credit card features to put up with a high rate credit card in your wallet.

One of the primary steps to getting debt free is to refinance your high interest balances and get lower payments. And, once you are paying less in interest, you can, through financial self discipline, apply more money toward retiring the principal and finally be free.

Credit card debt consolidation can be a great thing if you can slash your interest and begin crawling out of the hole that has been dug. But remember that it is not a solution unto itself but rather one of many steps to gaining financial freedom.

Published June 27, 2008

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