|By David Pilley on August 16, 2010
If you have multiple credit card debts, you might consider debt consolidation, or combining all of your credit card accounts onto one card. This is a good option if you want to keep track of one principal amount and one interest rate, but debt consolidation might not be for everyone. Here are some areas to consider when deciding if you want to keep track of less numbers.
If you don’t want your credit score to drop, don’t get a consolidation. Obtaining a new line of credit, when you already have multiple accounts with due payments, can be a red flag to creditors. You may be seen as a greater credit risk, and your credit score will go down.
If you want tax benefits, don’t get a consolidation. Interest on a personal loan is unsecured and, therefore, not tax-deductible. If you’re looking to lower your taxes, don’t look to your loan for help. Consider giving to charity (if you can).
If you don’t want to have the debt for an extensive amount of time, don’t get a consolidation. Combining all of your credit lines into one account may actually lower the amount you will have to pay, but it will be spread out in small monthly payments for a long period of time, possibly ten years or even more. The longer you have the debt, the longer the interest rate applies, and what originally looked like a small amount to pay will become a large amount because of accruing interest.
If you are not willing to pay more than the minimum payment, don’t get a consolidation. When you consider consolidating your accounts into one payment plan, you really need to pay attention to your budget. If you pay just the minimum monthly amount, you will be paying too much! Whether you decide to buy cheaper food or take public transportation or cut back on cable, allocate some part of your original budget to paying a larger amount of your debt each month.
Finally, if you are not willing to make a change in your lifestyle, don’t get a consolidation. When considering a debt consolidation and all of its potential parts (lower principal, longer term, higher amount of interest), you need to look inside and consider how you got here. Maybe you made a few too many frivolous purchases or went out on a few too many movie night dates. If you get a consolidation loan and continue to run up new credit card debts, you will just be continuing the cycle and your debt could land you in more trouble.