Debt Consolidation Loans VS Credit Cards
When looking to rid yourself of debt, debt consolidation can provide a neat method of paying off your debts all at once. Having only one debt instead of multiple debts can help you prioritize better in regards to your finances. There are two main ways to consolidate your debts: consolidation loans and credit cards. Each method of debt consolidation has unique benefits and detriments that should be considered carefully when looking to eliminate debt.
Consolidation Loans
Consolidation loans are loans that can be used to pay off your existing debts. These loans can be issued from banks, unions or other credit providers. The main idea of a consolidation loan is to only have one debt to pay off when all is said and done. Once you make the payments necessary to eliminate your other debts, you’re left with one debt to comfortably pay off. This method of debt relief can help to circumvent interest rates for credit cards and other forms of debt. In the long run, proper maintenance of a consolidation loan can help to save you thousands.
One of the main issues that many people run into when considering a consolidation loan is their credit. While a consolidation loan can create a quick fix for those in debt (and especially for those without money), it can be increasingly difficult to be approved if your credit suffers due to said debt. Generally, consolidation loans are provided with the same qualifications as regular loans. The worse your credit rating, the higher your interest rates will be. While this might seem like a bad thing, having only one debt can negate the interest rate if paid off fast enough.
A consolidation loan can provide money in a pinch (to pay for an emergency repair or a medical procedure). However, as with any debt relief effort, it requires discipline to make it successful in the end. Maintaining a functioning budget, incorporating better spending habits and eliminating frivolous expenses can all help you rid yourself of your debt.
Credit Cards
Credit cards can be used to help consolidate your debts, though they aren’t the first thing many people in debt think of. Being the root of most debt, credit cards are rarely seen as a method to help you get out of debt. Similar to consolidation loans, credit cards rely on your credit rating to be of any use to your consolidation efforts. If your credit is not good enough, you might not be able to receive a card with a large enough balance to consolidate all of your debt. In some instances, you might end up with a worse interest rate than with any of your previous lines of credit.
The main difference between credit cards and loans is that loans are one shot deals. Once you use up the funds from a loan you won’t have access to it anymore. The only thing left to do would be to pay it back. A credit card can help you to consolidate your debts, but once you pay it back you’ll be able to use it again. As with every credit card, paying off the balance will allow for near-immediate use of the credit you have.
In order to achieve success in consolidating debt through the use of a credit card, the key is to curtail most (if not all) of your credit use. When trying to rid yourself of debt, adding extra debt can only be detrimental to your cause. This can be solved by adjusting your monthly budget to incorporate your debt relief actions. Make sure you incorporate your priority expenses (rent, mortgage, utilities, etc.) before you look to make any major changes to your spending habits. If possible, halt the use of credit and instead use cash.
Which Method Is Better?
Using a consolidation loan over a credit card to consolidate debt has the distinct advantage of being a one-shot deal. Instead of having to carefully watch your new source of credit, you can focus on paying off your existing debts, then paying off the consolidation loan. It takes the guesswork out of debt elimination when you focus on making your payments. Having a clear plan for your consolidation loan can help you pay it off quickly.
Using a credit card over a consolidation loan to consolidate debt can be beneficial in unique ways. Since a credit card is a line of credit that stays with you, you won’t be on the same deadline schedule as you would be with a debt consolidation loan. Without a clear cut end to your newfound line of credit, managing your debt will be an ongoing effort. With a credit card, you also have the ability to consolidate ongoing payments (like monthly bills) so long as your keep up with your credit card payments.
In the end, one method of consolidating your debts is not particularly better than the other. While using a loan has certain differences and advantages over using a credit card (and vice versa), there are no clear positives that push one method to the forefront. Which method to choose can be whittled down to what you feel most comfortable using. Whether it is a consolidation loan or a credit card, both lines of credit need to be handled well in order to be kept under control.
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