Explore Your Credit Card Counseling Options
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It's finally happened. You're in way over your head. The credit cards are piling up, and you don't know what to do. Before you miss a payment, and start getting phone calls, it's time to talk to someone about consolidating your credit cards. Credit card consolidation services are pretty much a dime a dozen. What you really need is a way to better manage your debt.

Playing Hot Potato With Your Debt

One of the more popular ways to consolidate debt is to continually transfer all debt to a single credit card with a low interest rate. These low rates are usually teaser rates. You're probably familiar with them. They offer you 0 percent interest for the first 6 months or year, then the rate adjusts upwards. Usually, it's not a big deal because, by that time, you can find another credit card with a low interest rate on balance transfers. You just keep playing "hot potato" with the debt until it's all paid off.

You get two benefits from consolidating credit card debt this way. For starters, you're working with a low or zero percent rate so the debt gets knocked down quickly. Second, the interest you do pay is little to none.

The only problem with this strategy is that, if you miss one payment, the game is over. Teaser rates usually come with stipulations that include making all payments on time (credit card companies are particularly strict about this one). On top of that, a late payment could be recorded on your credit report if it goes 30 days late. If, for some reason, this happens, you can usually forget about getting other low-interest balance transfers from other companies. Your credit will be dinged enough that you'll have to pay the normal, unattractive, rates that make credit cards infamous.

Consolidation via Home Equity

Home equity lines of credit (HELOCS) and ordinary mortgages are great ways to carry long-term (and high) credit card balances. These types of loans are also the most common way to consolidate debt due to the low interest rates offered by banks and the fixed nature of the payments and interest. In most cases, you will pay more total interest by using your home's equity to consolidate your credit cards if you stick to the amortization schedule. However, if you make a plan to pay off the home equity debt early, you can actually save money.

The downside with this strategy is that, if you stick to the amortization schedule, you could end up paying much more than what you would had you just kept the credit cards. Also, some consolidation programs that use home equity also stipulate that you must terminate the old cards. This isn't such a good idea if you want the flexibility to use them again after you've paid off your debt.

The Dangers of Debt Consolidation

One of the biggest dangers of consolidation is that it doesn't necessarily teach you sound budgeting and money management principles. Yes, you can consolidate debt. Yes, you can simplify your debt payments. However, if a bank or credit card company doesn't require that you destroy the cards in the process of consolidation, then you could very easily charge up the now-clear cards, putting yourself even deeper in the hole. Because consolidation typically promises "one low payment," it can lull you into a false sense of security or accomplishment. As long as the total outstanding debt amount exists, you have to have the willpower to avoid charging up your credit cards again. Not everyone can do this.

Where To Go From Here

Contact a credit counselor first. A counselor can help you determine whether or not consolidation makes sense for you. Your counselor is an expert in budgeting and money management, and he will be able to analyze your situation objectively and see things that you might not. They will bring a fresh perspective to your financial situation as well as unbiased advice.