Credit Card Consolidation – Yes or No
Debt consolidation is a process enabling the borrowers to roll the multiple debts in to a single new debt. Ideally speaking, the new debt is the one with lower interest rate. It makes the new payments considerably manageable.
In other words it allows the borrowers to pay off the total debt faster. Many people try the mechanism of debt consolidation but not all of them emerge to be better. At times borrowers even end up shaping in to something worse.
It can be either because their debts remain overwhelming in spite of better terms of payments or because they use their credit cards again. Other people turned out to be successful because debt consolidation is a part of a bigger plan in order to gain the lost control over the finances.
So the first step that needs to be well thought about is that if debt consolidation will actually work for you or not. There are several ways of consolidating the debt.
For instance, with home equity loan, personal loan or a 0% APR credit card. Which option suits you best will directly depend on your available cash, your credit, and several other aspects like your financial situation and your personality.
Let’s look at a few:
Debt consolidation options:
0% balance transfer credit card:
In this type of debt consolidation there are no interest charges for a promotional period. This period usually ranges from 12 to 18 months. It facilitates you to transfer all your credit card balance over it against a small fee.
This method works best for people when they are willing to pay off their debt within the 0% promotional period.
- You pay the credit card payment via one card only at no interest rather than making multiple payments at higher interest rates.
- You need to have a good credit score in order to be eligible for this kind of payment plan
- If you fail to repay the debt during the promotional time then you will have to find another balance transfer offer. Or you may have to face higher rates.
- When you will be moving to a single credit card debt payment plan then your credit utilization ratio will be high enough damaging your credit score.
Home equity line of credit:
If you possess your own home then you can take out credit on the equity in your home. Interest rates in this case are low and variable. In this way you can make use of that money to pay back your debts.
This kind of deb consolidations usually demands interest payment only during the first decade. It simply means that you will have to pay more than the minimum due payment in order to reduce the overall debt.
Pros: It offers interest rate that is lower than the unsecured loan
Cons: It is a secured loan. This means that your house will be on the line in case you fail to keep up with the payments.
Debt consolidation loans:
If you take personal loan from the local bank or an online lender or credit union then you will be in a position to pay back your debt in a shorter time period.
You can make of the online lender who will get you lower interest rate as compared to the local bank; but it will directly depend on your credit profile. You can look for various online lenders without affecting the credit score.
Unlike credit unions and banks, most of these will facilitate you with a rate without any strict inquiry about your credit history. The lowest rates with the best credit history are about 36%.
Credit unions are usable by those people who have dinged credit. It is because they work with the borrowers, facilitating them with lower interest rates as compared to a bank to pay off the debt.
There are certain online lenders who keep their focus on debt consolidation while others aim at catering the people with bad credit by looking at nontraditional factors, such as education and occupation.
Most of the online lenders have no repayment fee so that you will be in a position to pay off your loan in a shorter time period without any penalty.
Pros: It will be easier for you to pay your fixed installments that enable you to work keeping yourself within the budget.
Cons: Whatsoever but debt consolidation is a debt and you cannot deny it. You just cannot steal your way towards financial freedom; though lower payments might be facilitating but only when you make use of the money as planned and follow it religiously.
There are other ways of consolidating the debt and these above mentioned are the ones that are usually used by the people in getting done with the process successfully.