Consolidate my debt - will it solve your credit card debt problems or will it get you deeper into debt? Debt consolidation has rapidly become the most sought after solution in overcoming insurmountable debt problems. There definitely are advantages to a debt consolidation but be aware that there also are certain disadvantages brought about by consolidating one's debt. Before you decide whether a debt consolidation is the solution to your debt problems, you should first be aware of the different factors to be considered in a debt consolidation program.
1. The total amount of your outstanding balances
Most major creditors who offer consolidation will grant a debt consolidation program to those who have at least $5,000 in outstanding credit card debt. For other creditors, the minimum is $10,000. So if your total outstanding balance is less than that, might as well work on solving the problem yourself. $2,000 worth of debt can easily be eliminated as long as you commit yourself to paying more than the minimum-required payment each month.
The reason why creditors will only work with customers who have more than $10,000 in debt in a debt consolidation program is because their administrative fees for this program is charged monthly. It will certainly take longer to pay off $10,000 compared to $2000. The longer the time the loan gets paid off, the more money the credit company makes. Simply put, consolidation companies will not profit from consolidated loans that amounts to $5000 or less.
2. The interest rates and other service charges of the consolidated debt
If you are looking for a company that will consolidate your debts, make extra certain that they will be offering you an interest rate, which is considerably lower than any of your existing credit card accounts. Also, check the fine print and examine if there are any service fees and charges that are attached to it. Calculate exactly how much your payments will be monthly and compare it to the amount you are currently paying towards your debts. If the calculated figure is equal or more than what you presently make, that program is definitely not worth the hassle
3. Make sure that that your consolidation company will come up with a plan that will strategically help you out in paying your debts off
In a debt consolidation program, the company you consolidate your debts with should be able to negotiate with your creditors to reduce the interest rate of your account. Also, as the term "consolidation" implies, all your debts will be combined into a single debt leaving you with only one monthly debt payment to make. You will be paying your consolidation company and they will in turn disperse the payments to your other creditors.
The problem sometimes is some creditors do not change the date your amount is due according to the date due of your consolidated debt. Example: the due date to one of your past accounts is every 3rd of the month while your due date to the consolidated loan is on the 5th of the month. In this case, since you have not yet paid the single monthly payment to your consolidated loan, you may be charge for late fees for the account that was due on the 3rd. So make sure that all of the dates due on your previous accounts coincides with the due date of your consolidated loan before even start making the single payments.
4. A debt consolidation adversely affects your credit score
The reason behind this is because with a debt consolidation, the credit card accounts that are enrolled in this program will be closed, thus lowering your credit score. Also, the other credit accounts that are subject of the debt consolidation will inevitably be frozen. It would be advisable, therefore, to carefully choose which credit card accounts will be consolidated. It would be wise to keep a credit card for emergency purposes. Of course, you should use your remaining credit card as responsibly as possibly. Use it only when an emergency arises and for nothing else. The best way to maximize the effect of a debt consolidation program is to prioritize consolidating all credit card accounts with the highest interest rates and the greatest account balances. This way, you get to save on interest charges more and you get out of debt faster.
Debt consolidation can be advantageous in so many ways. you get a considerably lower interest rate to the total debt amount, you get to manage your debt better since you would be dealing with a single payment a month, your creditors would no longer be bothering you to pay your dues, and you may find yourself debt free sooner than you can imagine. There are, however, major factors to consider before deciding to enroll in such a program. Do your homework and choose a debt consolidation company that will provide you with an excellent customer service and most importantly, one that will give you the best deal.
To learn more about debt consolidation and other debt solutions, please visit this link: http://debtconsolidationpro.info/
By: Andre Navarrete
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