Using Debt Consolidation to free up Room on Your Credit Cards
While many people think of using debt consolidation to get out of debt, there are some other uses for this financial tool. In previous articles, we’ve talked about how to use debt consolidation to save money and make investments. In a few cases, however, this tool can be used to make it possible for people to put more debt on to their credit cards.
Why would anyone want to do that? After all, everyone knows that credit card debt is some of the highest interest debt available on the market. While this is true in many cases, for a small number of people, credit card debt has a low interest rate compared to other types of debt that they can access. This is typically the case for business owners and self-employed persons that have great scores but income that is difficult to document.
For these people, credit cards are often a way to even out their cash flow during periods when it is difficult to come up with the cash that they need. If you’re currently in the middle of one of these periods, then it is possible that you’re bumping up against the credit limit on your cards. If you still need more funds, then a debt consolidation loan can be a good way to fix the problem.
A debt consolidation loan will pay off the balance on your credit cards and replace it with a new loan. This new loan can have an interest rate and payment term that you specify; you and your debt counselor will work together to figure out the right loan for you. In the meantime, your existing credit card will show a balance of zero dollars. That allows you to make new charges on these cards.
While there may be a few cases in which a credit card company decides to lower a person’s credit limit because he or she took out a debt consolidation loan, this is fairly rare. In fact, it is more common for a credit card company to raise credit limits, since being able to pay off your credit cards is a good indicator that you are able to handle more credit.
<p data-sp-element=”content”>As long as you have a good credit score, this method is a good way to raise the amount of credit extended to you. Of course, it should only be attempted by business owners who know that they have outstanding invoices that will allow them to pay off these debts.