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VARIABLE RATE LOANS OFFERED BY CREDIT CARD COMPANIES FOR PAYING OFF DEBT
Many credit card companies will offer debt
consolidation loans for you to pay off your unsecured
debt. The interest rates for these types of loans are
variable, usually starting in the range of 6-8%. Terms are
usually five years. Are these types of loans a smart
means for eliminating your debt?
You need to analyze all aspects when deciding whether or
not to utilize the debt consolidation loan being offered
to you by your credit card company.
Below are some important things to consider:
- The credit card company is offering you a 'deal' that seems really
good. However, a variable interest rate loan should be
avoided at all times. Why? Variable rates are based on
the prime rate, which has been increasing steadily, and
has been forecasted to continue to increase.
- You are having difficulties paying your existing monthly minimums.
It has become hard for you to pay-off a loan that has
probably by now amortized over 8 - 10 years. The law
is that your minimum payments must cover interest and
fees. Allowing you pay-off your loan over a realistic
time period. However, your bank will determine what
is realistic, and it is typically between eight and ten
years. So, if you choose a repayment time frame of
five-years, your monthly principal total is going to
rise. A short termed lower interest rate can mean
that you will have a reduced payment, however, this is
not certain because of the variable interest rate. The
interest rate of a five year term loan will not change.
- Does the debt consolidation loan offers by the credit card company have
a pre-payment penalty? Some cards will charge a penalty
for early payments of these loans. Also, does the
card have late payment penalties? Some card have
provisions that state if you are ever late on a payment,
your interest rate will rise to a penalty rate. Some card
issuers will raise your interest rate just because your
credit score has gone down, even if you were never late
on any payments.
If your variable interest rate is increased for any of
the reasons above, you can wind up paying a great deal
more than what you owe.
Let us help you!
If you ever receive a debt consolidation offer from
your credit card company,
present it to us. We may be able to offer you a
consolidation loan alternative that will better suite
your situation, and help you save money.
We also suggest you educate yourself about the dangers of
credit card cash advances.
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