He is saddled with crushing debt and at the end of his rope. There has to be a way out. You go to the door every day, expecting bad news. Your credit card minimum payments eat up the bulk of your bi-weekly paycheck. You can’t go to dinner, go on a trip, or save for your children’s education, and it just keeps getting worse. You are now using your credit cards for living expenses. This really sucks!

Many people are finding themselves in this situation; the “Credit Card Death Spiral”. As the nation’s credit card burden continues to mount, the number of people facing this credit nightmare is increasing at a frightening rate. It happens for many reasons and is depressing and debilitating. Credit card companies have relaxed the initial requirements for obtaining a card in recent years. The change allows people with marginal credit scores to obtain multiple credit cards. Also, many of these cards have higher credit limits than in the past. This combination has encouraged many consumers to take on much higher levels of debt than in the past.

In addition to relaxing credit card requirements, lenders are changing the way they do business once a consumer has a card. In the past, banks and other credit card issuers did not allow you to charge more than your credit limit. This has changed. Now, many financial institutions will accept a charge even if you put the account over the credit limit. When the account goes over the limit, they charge a hefty fee, increase the cardholder rate, or both. Many credit card issuers are doing this and it may increase
rates on a credit card to more than 40%!

Here is a common scenario. You have a card with a rate of 12% and a credit limit of $5,000.00. Your card’s current balance is $4,475.00 and you are buying clothes and school supplies at a back-to-school sale. You visit some shops and pick up some items. Like most people, you don’t have your exact account balance memorized. Your last purchase takes you a few dollars over your limit. The charge is approved anyway.

Imagine your surprise when you receive your next credit card statement. Your interest rate has increased to 30% and your minimum payment, previously $88.00, is now $168.00.

To really assuage your wounds, the bank has added a charge of $39.95 for exceeding your credit limit. It gets much worse. The 29% interest rate doesn’t just apply to the purchases you just made, it’s applied to your entire credit card balance!

This kind of scenario happens hundreds of times every day. Left unchecked, you will enter the “Credit Card Death Spiral” which often ends in bankruptcy or at least a horrible credit situation. There are ways to escape this chain of events. One option for many is through a debt consolidation loan.

A consolidation loan consolidates the borrower’s debts by paying off the smaller loans with a larger loan. This type of loan typically uses the equity in the borrower’s home as collateral for the loan. Having a secured loan allows the interest rate to be much, much lower than an unsecured credit card loan. The lower rate creates a payment that is substantially lower than the total of previous credit card payments.