You may take help of debt consolidation when you face problems to make even the minimum monthly payments on your multiple credit cards. However, while choosing this option to consolidate bills, many of you come across a question as whether or not credit card debt consolidation is the right option for you.
3 Ways to consolidate your credit card debts
Before finding out whether or not debt consolidation is the best option for you, you should know about 3 ways to consolidate your credit card bills, as discussed below.
Balance transfer method – With your creditors’ approval, you can transfer your high interest credit card balances to a comparatively low interest card. You can apply for a low interest or a zero-interest card if you don’t have one.
Consolidation program – You can go for a credit card debt consolidation program if you want professional guidance to pay back your credit card bills. In this program, a consolidation company negotiates with your creditors to reduce the interest rates of your credit cards. The company also makes a monthly repayment plan with which you can pay off your bills.
Consolidation loan – A consolidation loan can also help you to pay off your bills at once. It is similar to a personal loan that you can take out from any financial institution.
You can also take out a home equity loan to consolidate your credit card bills. However, you should have enough equity in your home to use it as collateral for the loan. By paying off your bills with the help of a home equity loan, you actually replace your high interest debts with a comparatively low interest rate home equity loan.
Credit card debt consolidation – Pros and cons
The pros and cons of credit card debt consolidation are discussed below.
Pros:
Single monthly payment – You need to make a single monthly payment towards your debts regardless of the consolidation method you choose to repay your debts.
Reduced interest rate – The interest rates on your credit cards may get reduced when you enroll in a consolidation program. You may also take out a consolidation loan with comparatively low interest rate or opt for balance transfer to pay back your bills at a low or zero percent interest rate.
Stress free – Your creditors and collection agencies may stop calling you when you enroll in a consolidation program or take help of other consolidation methods to repay your debts.
Positive effect on credit score – Credit card debt consolidation has a positive effect on your credit score as when you pay off your bills, the accounts get updated in your credit report as “paid in full”.
Cons:
Max out credit in future – You may fall into credit problems once again if you don’t stop using your credit cards.
Lose your valuable asset – You may lose your valuable asset if you opt for a secured consolidation loan (such as, a home equity loan) and fail to pay it off within the stipulated time period.
Pay more on your debts – You may have to pay more on your debts if you take out a consolidation loan with a longer repayment period in order to reduce the interest rate.
Credit card teaser rate – The low interest or zero percent interest rates are usually offered for a limited period of time and usually last only if you pay back the balance on time.
After considering the above options, it can be concluded that credit card debt consolidation is the right option to pay off your credit card bills. Moreover, it also has a positive effect on your credit report that helps to raise your score.
Keyphrase: credit card debt consolidation
Description: Credit card debt consolidation – Know about 3 ways to consolidate your credit card bills. Check out the pros and cons of credit card debt consolidation.
