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Credit cards for debt consolidation: is it a good strategy to follow?
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Credit cards for debt consolidation: is it a good strategy to follow?

Credit cards are used for a variety of financial purposes, from paying your bills on time to spreading bills. equivalent monthly payments (EMI) or to consolidate multiple bills into one. In addition to all this, you can also use a credit card to debt consolidation. This basically means that you can use your credit card to pay off your outstanding loan(s).

Let’s understand how it works. Suppose Mr. credit card obligation to 2 lakh which he has to repay, and then there is a personal loan of 1 lakh which he took six months ago and will continue for another year.

What Mr. 3 million.

But why should he do this? The advantages are numerous: above all, he only has to manage one loan instead of two or more loans in all categories. It’s easier to keep an eye on a deadline each month for the EMI Payment instead of two or more maturities for different loans. Second, when you consolidate debt, it is considered paying off old debt. This helps your credit score to move forward little by little.

However, before using your credit card for debt consolidation, you should keep the following points in mind:

Follow these points before debt consolidation:

I. Credit utilization rate: The ideal credit utilization rate for a credit card is 30 percent. So, at the time of debt consolidation, make sure you do not exceed the optimal total credit limit. While there is no rule of thumb that stops you from doing this, you risk losing your credit score if you opt for this option.

II. Balance transfer: Sometimes credit cards offer promotional balance transfer rates, which allow card users to transfer debts from a card with a higher interest rate to a new card with a lower interest rate. This can help reduce interest charges and make it easier to pay off your debts.

III. Debt repayment: By consolidating your debts onto a single card, you simplify your payments. However, it is essential to pay off the balance before the end of the promotional period, as interest rates can then rise.

IV. Miscellaneous expenses: Be aware of potential fees associated with balance transfers and be sure not to add new debt to the original cards, as this could make your financial situation worse.

There are a number of other consolidation methods that include personal loans depending on your situation. It is therefore advisable to assess your financial situation and consider seeking advice from a wealth advisor.