Level 1

Credit cards

If you're having trouble paying off credit cards, a debt consolidation personal loan is a great way to go. They're lower interest and you can't continue to add to the balance with new purchases. The reason your credit cards seem to be going up instead of down is that you continue to accrue interest on the balance. To make things simple, I'll just throw out some realistic but imaginary numbers...

Balance: \$5000

Minimum payment: \$150

Interest: 14.99%

Without doing actual math, the 14.99% interest is applied to the balance at a specific point in time each month. Let's say that interest is \$50 based on the info above. Let's also say you make the minimum payment of \$150 that month. You would expect your balance to be \$4850, right? Well, without making ANY purchases, the balance on the next statement is \$4900, because they'll apply the interest to your balance before sending you the next bill. Make a purchase of only \$100 and you'll be right back where you started. In essence, you paid your balance down by \$100 and then gave the credit card company \$50 that month to maintain your debt.

If you're not familiar with this and really understand this, it's kind of an eye opener and can get a lot of people into financial trouble.

Credit consolidation loans (through a reputable financial institution and not one of those mailbox solicitors) can be a great way to reduce your debt. There's no surprise fees and you can't add debt on top of it. HOWEVER... and I can't stress this enough... the only REAL way to reduce your debt is to change your spending habits. The best way to do this? DESTROY YOUR CREDIT CARDS. The trap most people fall into is the one where they get a personal loan to pay off their cards, then go right back to using them because hey now there's plenty of room on the card for me to make this one purchase and then pay it off at the end of the month. One purchase turns into 2, then you take a vacation because your card can afford it. Purchases pile up VERY quickly, and the interest is VERY high. 6 months down the line you now have a personal loan payment and your credit cards are back to where they started.