Published in Debt Advice Features on Tuesday, April 19 2005

If you are stuck with a bunch of old debt and find yourself using your credit cards to finance this debt, you could be doing yourself a grave financial disservice. Using credit to pay off old debt is almost never a good idea. If you look around, you should be able to find a better and more cost effective way to retire the old debts you have been carrying around.

For instance, one type of debt that can seem to last forever is student loan debt. A quick look at the numbers reveals why this is so. University costs have been rising far higher than the overall rate of inflation for many years now. The compounded effect of these constant tuition hikes can make university totally unaffordable without financial aid.

While there are a number of excellent student loan packages available to college students, paying these loans down can be very difficult. A university graduate is unlikely to be making a very high salary, even in a competitive environment. A downturn in the economy right before graduation can make this situation even worse. Many former graduates find themselves in the uncomfortable position of being unable to make their monthly student loan payments. There are some programs available which allow students to consolidate their student loans and pay them off over a longer period of time, however, and this approach is preferable to wracking up credit card debt in an attempt to pay off college debt. Look around for these loans or ask your local bank loan officer for options.

If you own your own home, you may be able to use a home equity loan to retire your old debt. The interest rates on home equity loans are almost always much lower than the interest rates on credit cards or other types of loans. If you have built up equity in your home during the recent housing boom, you may be able to tap this equity to finally get rid of that old debt you’ve been carrying for years.Just remember, however, that you are pledging your home as collateral. This means that if you are unable to make the payments, your home could be at risk of foreclosure. Be absolutely sure that you will be able to afford the payments on a home equity loan. Also be sure that you use the proceeds of the loan only for debt repayment and not for more spending.

A personal loan from your local bank can also be a good way to pay off old debt. Like a home equity loan, a personal loan will likely carry an interest rate far lower than that you would pay on your credit cards. Using credit to pay off old debt is the worst thing you can do and will only get you further and further into debt. By using a personal loan, you can eliminate your old debt and have one monthly payment instead of the many you may be making now.

Paying off old debt can be a difficult thing to do. The debt that took only days or months to create can end up taking years or even decades to get rid of. But being aware of the many options besides using credit can make your financial life easier and put your mind at ease.

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The author of this content is Ryann Cairns who has been advising on Debt related issues for the past four years and has provided content for various sites across the globe. For further examples of his Debt Advice check out his website click here.

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