You have multiple credit cards, bills, car and house loans, but it’d be so much easier consolidating your credit card debt into one monthly payment. You could also pay off your credit card debt faster by consolidating them.
First, you need to decide which credit card debt relief program is right for your situation. Most of them will be able to offer one simple monthly payment, but they all have their different features.
How Can Credit Card Debt Consolidation Save Money?
This all depends on what type of Credit Card Debt Consolidation Program you use. More than likely any Debt Consolidation Program you choose will save you a considerable amount of money when compared to the minimum payments. You can use the credit card debt calculator to look at your specific situation and how much you can save.
What Does Credit Card Debt Consolidation Mean?
Essentially it refers to consolidating your debt using one of the credit card debt relief programs. Since all the programs differ slightly, let’s cover what each of them mean:
- Debt Consolidation Loan
When most people think of Debt Consolidation they think of getting a loan at a lower interest rate than their credit cards, use the money to pay off the credit card debt and then make only one payment to the bank that offered the loan.
Benefits of a Debt Consolidation Loan:
- You will only have one monthly payment as opposed to several. This will reduce the chances that you miss a payment on accident.
- Normally the interest rates are lower than your credit card debt so you’ll be putting more money towards principal than interest.
- Since more of your payment is applied towards the principal you’ll likely get out of debt faster.
Disadvantages of a Debt Consolidation Loan:
- Unsecured Debt Consolidation Loans a very difficult to obtain today. Even if they do, traditional banks aren’t normally offering more than $5,000 – $10,000 which is usually not enough to help most people out.
(If you still want try and apply for a Debt Consolidation Loan, try our affiliate partner Prosper Funding . They’re one of the largest Peer to Peer lending firms, so if it can be done at all they’ll be the ones)
- Most banks are requiring collateral to offer loans which usually means you need to refinance your home. IF your home can even appraise high enough to qualify in this housing market, you’ve now taken unsecured debt (no collateral like your credit cards) and secured it with your home. It’s one thing to not be able to pay your credit cards off. It’s another if you can’t pay your mortgage.
- “Robbing Peter To Pay Paul.” It’s an overused saying, but it’s so true. In most cases, the problem isn’t about paying off your debt… it’s about how much debt you let yourself get into. By getting another loan you aren’t breaking the habit of using debt. Before you know it you’ll be looking for another loan or credit card to transfer balances. It’s an endless cycle.
- Credit Card Counseling
This is often referred to as Debt Management or Debt Counseling. Instead of paying your creditors directly, you make one monthly payment to a counseling company who then forwards the payment over to your credit card companies.The primary goal is to negotiate and reduce the interest rates on the accounts. Thus, you can get out of credit card debt much faster than using minimum payments.
Benefits of Credit Counseling:
- Make only one monthly payment
- Get out of credit card debt much faster than minimum payments.
- No Collection Calls.
Disadvantages of Credit Counseling:
- Usually very little relief in monthly payments.
- Programs are normally 60 months (5 years) in length.
- Total program cost is more than 100% of the balance since there is no principal reduction.
- Credit Card Debt Settlement Program
Sometimes this is referred to as debt negotiation or debt reduction. This is a program where the principal balance of your credit card is reduced by negotiating a settlement with the creditor. Monthly payments are made into a special purpose or trust account each month until there are sufficient funds to make a bona fide offer.
Benefits of Debt Settlement:
- Only one monthly payment which usually provides a little breathing room.
- Pay Off Credit Card Debt in 12-48 Months
- Total Program Cost is normally 55-70% of the original balance. (This assumes you can make all debt settlement program payments)
Disadvantages of Debt Settlement:
- Creditors can continue collections efforts until accounts are settled.
- Credit Score is impacted.
- There are no guarantees that the debt will be reduced by a specific dollar amount.
Which consolidation option is best for me?
Everyone has a unique situation. For one person getting a small debt consolidation loan is the world of a difference whereas others have more than $5,000 in credit card debt so they’ll need something else.
Give us a call or submit the form on the right side and we’ll go over all the options with you. The worst option is doing nothing at all!