How Does Credit Consolidation Help You To Repay Debt?
If you have credit cards, then you should know how to use them properly. Many of you do not realize it until you face problems in managing your multiple credit card loans/debts. However, you can go for credit consolidation to repay your multiple debts.
3 methods of consolidating credit card debt
There are 3 methods by which you can consolidate your multiple credit card loans. Each of these methods is effective and you can choose one according to your suitability.
• Enrolling in a consolidation program
You can go for a credit consolidation program if you want professional help to consolidate your loan/debt. As soon as you enroll yourself in the program, a debt consultant, on behalf of the consolidation company, will analyze your financial situation; he/she will also try to negotiate with your credit card companies to reduce the interest rate on your loans. The counselor will also prepare a monthly repayment plan and will get it approved by your creditors. You will just have to make the monthly payment to the consolidation company, which will distribute your money amongst your creditors.
• Through balance transfer method
It is not always necessary to take professional guidance in order to consolidate your credit card debts. You can very well do it yourself by transferring your high interest rate balances to a low interest rate card. However, your creditors need to approve the balance transfer.
• Taking out a consolidation loan
A consolidation loan can also help you to get rid of your multiple debts. You can take out a personal loan and pay off your credit card debts. Thus, you will actually replace all your existing debts by a new loan.
Advantages of consolidating your credit card debt
You can enjoy a number of advantages if you go for credit consolidation. The advantages are discussed in the following lines.
• With reduction in the interest rates on your loan, your monthly payments will also get reduced.
• Your stress will be reduced as collection agencies and creditors will stop making harassing calls.
• There is a possibility that your creditors and collection agencies will waive off or reduce the over-the-limit charges and late fees.
• It will be easily manageable for you as you’ll have to make just one payment every month.
Disadvantages of consolidating your credit card debt
There are also some disadvantages attached to credit consolidation. The disadvantages are listed below.
• You may end up paying more if you take out a consolidation loan with longer repayment term.
• It is utmost necessity to check your overspending habits; as otherwise, you may fall into another debt if you continue using your credit cards.
• If you choose consolidation program, then it will get reflected in your credit report.
In spite of certain disadvantages, credit consolidation is a better alternative to filing bankruptcy. Consolidation does not adversely affect your credit report but if you file bankruptcy, then it will have an adverse effect on your credit history as it will stay in your report for some years.