Credit Debt Loans

In these "interesting" economic times many people are out beating the bushes for credit debt loans.

Unfortunately these are not "good" credit debt loans but bad credit debt loans. That is, they are looking for loans to pay off credit cards. Specifically they are probably looking for bad credit debt consolidation loans.

(Note: the term "bad debt" in this article does not refer to the credit rating of the individual but rather the type of debt. Bad debt is debt you pay for, credit cards for example "good debt" is debt someone else is paying for like your tenants or customers.)

Consolidation loans have their place but many people get them for the wrong reason or use them incorrectly or don't do enough research.

A consolidation loan, quite simply consolidates a group of debts into one.

In the case of consolidating a group of credit cards into one loan, care must be
taken.

Will there be a fee for the new loan?
Is the new interest rate locked in?
Will you be tempted to run up new balances on the now "empty" cards?

This last point is most important. Long term, a bad credit debt consolidation loan will be of little value to you if you just run up the credit cards again.

If you close the credit cards you'll be hurting your credit score but if that is your only option because you can't be trusted to not use the cards (or pay them off in full) I say close the accounts.

A lower credit score is always better than more debt. ALWAYS!

If the credit debt loan you are considering involves a home and the equity
in that home, great care is required.

I'm not a big fan of rolling unsecured debt (credit card debt) into your home.

Particularly in these economic times I think it good to have both secured and unsecured debt.

If you roll your credit cards into your house and then hit a blip that makes it so you can't pay the mortgage you have a big problem.

If you hit that blip and can only make the house payment and have to let the credit cards slip, you get to keep the house.

Yes your credit will be hurt but you have a place to live while solving the problem.

Better to call your CC company and ask for a lower rate. Mention you've gotten some offers from other companies and you are thinking about switching.

Consolidate your credit cards into a home equity loan only as a last resort.

If you've really hit a hard spot with your finances, find some nearby help from www.nfcc.org

They are the National Foundation for Credit Counseling.

The specific page on that site is:

http://www.debtadvice.org/takethefirststep/locator.cfm

Don't deal with any organization that claims they can help you pay your debts unless they get a link from that website.

So if you are looking for a bad credit debt loan (meaning debt owed to credit cards) follow this advice and you should be OK.