Should I use my line of credit to pay off my debt?

Thursday, April 30, 2015 - 18:27

Consolidation Loans, Money Management


We get asked this question a lot. Consolidating debt can definitely be a good strategy. The obvious advantage of consolidating your debt is that you reduce the interest you are paying. Therefore using your line of credit to consolidate your high interest credit card debt will definitely improve your situation and may help you to dig yourself out of debt on your own.

There are two common problems people run into when they consolidate their debts:

  1. Not being able to afford the consolidation loan payments
  2. Using their credit cards after consolidating

The biggest problem with consolidation loans is being able to afford the monthly payments. By payments I don’t mean just covering interest charges and making minimum payments. I mean paying enough to cover interest and repay principal in a reasonable time period. You can use the debt options calculator on my website to get an idea of how much these payments might be. Provided that you can afford the “payments” then consolidation may be a good strategy for you. If you can’t afford the “payments” then you may want to consider another strategy to deal with your debts like making a consumer proposal or filing personal bankruptcy.

Another big problem with consolidation loans is that after people consolidate their debt they continue to use their credit cards. This can be the result of not being able to make the payments described above, or as a result of credit mismanagement. If you continue to use your credit cards after you’ve consolidated then you aren’t getting out of debt you are increasing it. Consolidating is only a good strategy if you use it to get out of debt. Consolidating is not a good strategy if it results in you incurring more debt. If you are going to use a consolidation loan to help you get out of debt then I would recommend destroying your credit cards after you’ve paid them off.

The bottom line is that consolidation loans can be a good strategy for getting out of debt, but they aren’t effective for everyone. Provided that you avoid the problems I’ve mentioned above consolidating may be a great strategy for you. If you’d like to review your situation and explore other strategies for dealing with your personal debt issues please do not hesitate to contact my office.

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