Personal Finance Basics – Is Consolidating Your Credit Card Debt Worth Doing?

You have probably heard about or seen advertisements about how consolidating your credit card debt can help you by reducing your monthly repayments. Therefore, you will be better off, right? Personal finance basics, that is a basic knowledge of personal finance, will tell you – maybe. It works for some but it will not work for others. So to benefit you have to know which is which. And even if you realize consolidating your debt is not for you, then you will benefit. Because you now know more than you did before about your personal finance and you did not allow yourself to get into a worse situation.

The whole principle of consolidation your credit card debt is to have all your debt in one place to take advantage of lower premiums. Lower premiums because you can take advantage of better interest rates.

But consider this; often you will have to take out a personal loan to consolidate your debt. But, because of the nature of personal loans, there will be a definitive term for the loan, unlike credit cards, where, if you make minimum payments, you can extend the loan term in exchange for smaller monthly payments.

It is usually a bad policy to always make minimum payments on your credit card debt. But, there are situations where it can be beneficial to you. Perhaps your budget shows you can increase your payments after a couple of months. So, as a short term measure, short term means months not years, this facility could be very useful.

Remember that lower rates may not mean lower monthly payments. If you consolidate your debt through a personal loan you will have a definite term to pay off the loan. So, it could mean your monthly payments are increased even though you are taking advantage of lower interest rates.

An advantage, not to be overlooked, of consolidating your credit cards debts, is the fact that you will have only one repayment for your debts each month. This does make budgeting a lot easier and will reduce the chance of you forgetting about a payment and thinking you have more money to spend than you should.

One other thing you must remember is consolidating your debts is a method of improving your financial position. It most definitely is not a method of having more money to spend each month. You must strongly resist taking any additional money you get and spending it. You must use this money to repay your loans faster.

You should always be looking for ways of improving your personal finance basics. Make sure you understand how your credit cards work and make sure you have a budget you can work to.

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