Is Consolidating Your Credit Card Debt A Good Decision?

Many small businesses are started by owners using their personal credit cards to finance business expenses.  But it can quickly become a stressful situation if the credit cards are not managed properly.

Making on the minimum monthly payment can keep you under this debt for more years than you care to think about.  So at this point consolidating credit card debt into a loan is an option.

However there are always pros and cons in any type of business decision like this.

Some advantages to having your credit card debt consolidated in a loan:

  • The interest rate on your debts gets reduced.  The interest with the credit card company can be double or even triple that of what a bank will charge you.  With lower interest, your monthly loan payment might even be lower than the minimum credit card payments, not to mention you will pay it off faster.
  • Your late payment fees and over-the-limit charges may get reduced or waived off.
  • Easier to have one payment everyone month verses several credit card payment due at different times each month.

Some disadvantages of getting a consolidation loan:

  • You have the chance of getting a loan that is too long.  Getting a loan with a payoff time of 10-30 years just isn’t a wise choice if paying off credit cards. You can end up actually paying more in total then what you would have paid if you didn’t get the loan.
  • Once your cards are paid off by means of a loan, it is tempting to start using your credit cards again. You need to discipline yourself to not fall into that trap again. Otherwise in a short amount of time you can have a loan to repay as well as credit card debt again.