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The
Differences between Debt Reduction and Credit Card Consolidation
Using credit cards to consolidate your debts is not as effective as debt
reduction. Credit cards often have high rates of interest, and will often lead
you into deeper debts. In fact, credit cards are one of the leading causes that
debtors seek out debt consolidation solutions.
Debt reduction means that you are working to decrease your bills, not add or
keep the bills in existence by using another source to pay off the debt.
Therefore, instead of considering credit cards as a source for debt
consolidation, you must find a way to reduce your debts.
Let's say you owe money for your mortgage, car payments, insurance, utilities,
and other bills that add up to $1200 per month. Now, is there a way we can
reduce this amount? Absolutely, but can we find a mortgage that will refinance
our loan and help us to combine our monthly bills into one payment?
Yes. There are loans available that offer cash back, underpayment, and
overpayment plans; as well as loans that will wrap your bills into one,
combining the bills and adding them to your monthly installment.
Do not misinterpret this: your utilities are your responsibility, but for the
most part, your car payment, mortgage, and any credit cards or other loans will
be rolled into one monthly payment. Therefore, if you're paying out of the $1200
up to $800 per month toward car payments and mortgage, you may find a lender who
will reduce this amount to $600 more or less per month.
Furthermore, if you land a loan that offers cash back, you can use this money to
payoff your debts.
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Finally, utilities can be reserved and grocery bills can be
reduced. In addition, insurance coverage can also be reduced. Therefore, debt
reduction is wiser than credit card debt consolidation in the long run.
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