Home
Trash Those Credit Cards and Consolidate


Millions of Americans are financing their purchases with credit that has sky-high annual interest rates. Rates on credit cards can range from as low as 7% to as high as 25% per year. By contrast, inflation is typically at or below 3% per year. Even if you're lucky enough to have your salary rise by inflation every year, you still won't be able to match the interest being charged to your card. That's why credit card debt is so challenging to eliminate. Oftentimes, you'll feel like you're running on a treadmill and getting nowhere. Don't give up!


Consolidation is the key to paying down your credit card debt. Take out a line of credit that has a lower interest rate (likely below 10%). Use the credit available to pay off all your credit cards. This will help you in two ways. First, you'll be able to reduce your monthly payment by simple virtue of having the interest rate reduced. Second, you'll be able to pay your debt down faster since more of the payment can be allocated to the principal as opposed to simply paying off interest.


One common mistake is that those who consolidate don't bother to cut up their credit cards afterwards. When it comes time for extra purchases, there's the temptation to put them on the card. Doing so just adds the debt back on the card. What's worse this time is that not only is there the credit card debt, but now there is the line of credit debt to be paid back. This puts you back in the hole, only this time you're much worse off. Do yourself a favor. When you consolidate your debt, tear up the credit cards. Cut them up, close the account, and throw the remains in the trash. Some people actually elect to keep the credit card shreds as a reminder of the perils of getting too deep in debt. Of course, this choice is entirely up to you. Just make sure those accounts are closed!