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What Is Credit Card Debt Consolidation?
Credit card consolidation is the act of combining multiple credit card balances to create a single monthly payment with a reduced interest rate. Consolidating debts can be done a number of ways, and often leads to paying off debts quickly and more efficiently.
Credit cards have become a staple in the modern wallet. Often treated as “free money,” it’s easy for cardholders to use their credit cards for everyday purchases without even considering how quickly those purchases add up.
Unfortunately, credit cards are more of a slippery slope than free money. Before you know it, you may find yourself with too much credit card debt. If you suffer from debt on multiple cards, it may be time for you to consider credit card consolidation.
How to Consolidate Debt
Credit Card Debt Consolidation Loans
There are a few ways to pay off credit card debt. One route is to take out a loan from a bank, credit union or another lender. There are two types of consolidation loans: secured and unsecured.
Secured consolidation loans require borrowers to pledge an asset to the lender to be used as collateral in exchange for the loan. Some of the most common assets used for collateral include:
- Saving-secured loans
If you decide to work with a debt consolidation company, you may have to apply for an unsecured loan. An unsecured loan does not require you to put up collateral and can be used to pay off unsecured debt, such as credit card debt. However, this loan type is very rare and equally risky to both the consumer and the debt consolidation company. Not many trusted companies offer debt consolidation loan programs without collateral.
Credit Card Balance Transfers
Another method of consolidating your payments is to transfer your balance owed on one credit card to another that has a lower interest rate. You may have to apply for a new credit card to pay off your previous one, but the result would ideally give you a lower interest rate and lower monthly payments.
There are many factors that lenders may take into consideration when approving you for a new card including your credit history and the amount of the balance that you wish to transfer over. You should also be aware that many transfer balance cards come with promotional rates and may only be lower for a short period of time.
Debt Management Plans
There are risk-free ways to consolidate credit card debt payments. Debt Management Plans are designed to help you pay off unsecured debt efficiently. Qualifying clients can expect:
- A single monthly payment
- Lower fees and interest rates
- An end to collection agency phone calls
- Personal finance support
- Educational support
- Expert advice from professional coaches
Only the best credit card debt consolidation companies, like credit.org, can help you pay off your debt and take control of your finances. Ask about how you can get credit card debt help with a DMP during your free debt coaching session today.
Benefits of Credit Card Debt Consolidation
Consolidating your credit card debt may be the most important step to take on your journey to financial freedom. Here are some of the key benefits of consolidating your debts:
- A single, fixed monthly payment
- Reduced fees and interest rates
- Protection from further harm to your credit
- A chance to pay off your debts faster
Does Debt Consolidation Hurt Your Credit?
Risks of Debt Consolidation
Debt consolidation is not a solution to financial difficulties. Despite the steps you take to improve your credit, there are ways you can still harm your financial standings and credit history.
- You can still build more debt. If you continue to use credit or apply for new credit lines while also using a consolidation plan, the previous debt does not disappear. In addition to paying for what you already owe, you will also be responsible for any additional separate payments.
- You can still fall behind on payments. Following your payment plan is the only way to avoid falling further into debt. Once you have signed up for a plan, remember to make all of your monthly payments on time.
- Your spending habits have not changed. Debt consolidation plans are not a magical answer for your monetary struggles. Your personal finance awareness and continuous overspending may still be threats. Our debt coaches can help you by reviewing your situation and providing expert advice on how to take control of your finances.
A Debt Solution with Less Risk
When you begin a Debt Management Plan (DMP), you must first agree to not apply for any new lines of credit during the program. Once you have agreed, the next step is to close all of your current credit lines. Closing your current credit lines will:
- Reduce your credit history, which may lower your credit score temporarily
- Prevent you from applying for any new lines of credit
- Leave a notation on your credit history
Once you have completed your DMP, you will again be eligible for new credit. Also, it’s important to remember that the DMP notation on your credit history is not a negative mark and will not harm your credit score going forward.
In the long term, your credit score will begin to reflect your regular on-time payments, credit lines being paid down and pre-existing late accounts being brought to current. These are all positive credit history marks that can make a significant positive impact on your credit score.
Take Steps Towards Paying off Your Credit Card Debt
We believe the cornerstone of financial security is a strong financial education. Our experts will teach you money management and personal finance skills that will benefit you for a lifetime. If you’re struggling with credit card debt, take advantage of our free personal finance classes or schedule a free session with an experienced debt coach.