Many people who find themselves overwhelmed by credit card debt consider resorting to drastic methods to make the issue go away. Here are a few ways that people “resolve” their credit card debt issues that have serious drawbacks which consumers should be aware of.
Payday loan centers
Payday loan centers and emergency loans should only ever be used to give individuals a little budget help to address a one-time emergency expense that can be easily repaid with your next paycheck. Don’t be tempted to borrow from a payday loan center to address serious credit card debt issues or other types of ongoing debt. Payday loan and car title loan centers have very aggressive fees and exorbitant interest rates, and if you have to keep refinancing your loan, you’ll only continue to dig yourself into a deeper financial hole. If you leverage your car title against the debt, you could end up losing your car altogether. Swapping out credit card debt for payday loan or car title loan debt is really a no-win situation.
Home equity loans
A home equity loan allows you to take a loan out at a bank or credit union using your home equity as collateral. If you use the money to pay off credit cards, you’re essentially just swapping one type of debt for another, though the home equity loan terms and interest rate
may be preferable to those of your creditors. If you’re considering taking out a home equity loan to address your credit card debt, it’s important to assess whether you’ll be able to recoup that money if you sell your home in the future. If not, you’ve essentially just increased the amount you paid for your home by whatever amount you borrow. If you know you’ll struggle to pay off your home equity loan just as you struggled to pay down your credit cards, then you absolutely shouldn’t put your home on the line to resolve credit card issues.
Balance transfer offers
Balance transfer offers are an especially tempting way for credit card users to get a handle on their debt by transferring balances and locking into better interest rates, usually 0% APR for a certain amount of time. Those extremely favorable rates might seem like a real budget help boon. HOWEVER, before you take advantage of such offers, you should be certain that you’ll be able to pay off the entire debt by the end of that promotional period, otherwise you’ll usually have to pay interest on the entire amount that you transferred, and you’re no better off than you were before.
If you need to know more about how payday loans work. or you’d like more family budget help, feel free to check out the Protective Learning Center.