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Credit card debt consolidation is the process of paying off your debts with one loan, hopefully at a better interest rate. Consolidation can be an intimidating process for those who are unfamiliar to the debt settlement field. However, debt consolidation can help save you money in the long run if you achieve lower rates. It can get creditor off your back to relieve your stress. The process can also bring you one, simple payment each month to help you budget more effectively. If you are considering consolidation, learn the basics.
Who Can Benefit from Debt Consolidation?
Credit card debt consolidation is best for those individuals who have excessive debt but do not qualify for, or do not want to pursue, bankruptcy. Excessive debt can range from $5,000 to $30,000 depending on other factors such as your total credit limit and income. Typically, if you are carrying a balance of over 50% of your credit limit for over 6 months, you are facing excessive debt. You must have a substantial amount of financial obligations in order to benefit from debt consolidation. If you have a $2,000 principal on your credit card you just cannot shake, you should start doing a better job of budgeting, but debt consolidation is not right for you.
How Does the Process Work?
You can negotiate directly with your lenders or work through a consolidation agency. Often, a consolidation agency will provide the expertise, knowledge and connections with your lenders to gain the best solutions. Take an inventory of all of your credit card debt to consolidate. Provide this list to a debt consolidation agency with details about the negotiations you are seeking and how much you can afford to pay. The company will approach the lenders with the offer of a lump-sum settlement, sometimes for a fraction of the cost. You will then owe the debt agency rather than the original lender.
How Will It Affect My Credit?
If you have payments over 30 days late on one or more credit cards, your credit score has already been hit. You will suffer more if the debt has gone to a collections agency. Be proactive in seeking solutions to start the process of repairing your credit immediately. Debt consolidation will stain your credit score. However, it will likely disappear in a shorter period than a bankruptcy case. Bankruptcy usually stays on your financial record for ten years. If you pay off your new debt consolidation loan, you will rebuild your credit quickly.
What are the Alternatives?
The most common alternative to debt consolidation is bankruptcy. Debt consolidation is just one type of negotiation, however, and each type is nuanced with many options. For example, outright debt settlement means you pay the lender a lump sum directly rather than consolidating with a new loan. You may also seek refinancing on a single credit card or line rather than consolidating your debts. Depending on a number of factors such as how much you owe, the types of loans you have and your current ability to pay, compare the many options to find the right one for you.
How Credit Card Debt Consolidation Will Help You
