You might be considering a debt consolidation loan or credit card balance transfer to make your monthly payments more manageable. It's important to understand the pros and cons of debt consolidation before committing to a program. The better your credit score, the better the terms of a debt consolidation loan or credit card balance transfer. This means that a poor credit rating could translate into conditions that might not be better than those of your current debts.
Lenders are also cautious about making large loans to consolidate debt. When the goal of applying for a consolidation loan is to create a monthly payment that makes it easier for you to pay off your debt, being turned down for this reason can be especially frustrating. The main risks associated with debt consolidation include a deterioration in your credit rating, fees, the possibility of not receiving low enough rates, and the possibility of losing any collateral you have placed. This happens when the interest rate on your new loan or line of credit ends up being higher than that of your existing debts, which mostly goes against the purpose of consolidation.
Pros of Debt Consolidation
You can use the loan to consolidate credit card and other debts while making one monthly payment instead of several. Nonprofit credit counseling agencies, such as InCharge Debt Solutions, work with your creditors to reduce the monthly payment, interest rate, and penalties on your debt, without needing to apply for a loan.If you own your home and owe less than it's worth, you could qualify for a home equity loan to pay off your debts.
Cons of Debt Consolidation
Before accepting a debt consolidation agreement, it's important to seek advice from a trusted financial professional about debt consolidation. If your debt consolidation loan was denied because you have too much debt or not enough income, create a realistic budget with a detailed plan for how you will use your income to meet your goals. Consolidating loans may seem like a great way to better control your debt, but it's not always the right choice in every situation.Seeking Professional Help
American Consumer Credit Counseling (ACCC) is a nonprofit organization dedicated to showing consumers how to pay off their debts and avoid them in the future. Some nonprofit credit counseling agencies, such as InCharge Debt Solutions, offer this form of debt relief.Instead of consolidating debt, you simply consolidate all your monthly payments into a single payment to a debt management company, which pays all of your bills on time and, at the same time, seeks to reduce interest rates and finance charges to help reduce the amount you owe. Since 1991, we have helped thousands of individuals and families pay off their debts and develop a plan to avoid them in the future. The ACCC offers debt relief options to individuals and families experiencing stress related to credit card debt, providing effective credit counseling, helping to consolidate debt, and providing advice on debt management.
