Posted by Abundant Wealth Planning LLC

Credit Card Consolidation: Is It Right for You?

Credit Card Consolidation: Is It Right for You?

For everyone struggling with a series of credit card debt, consolidating such debt might be the best approach to bring down the interest and reduce your monthly payments. It is, however, not recommended for everyone.

Without a doubt, there will be some relief from debt consolidation as it will bring all your debt together into a single lower monthly payment; you might be dealing with a longer repayment term and more interest in the long run. 

The terms of your consolidation and the circumstance, most times, determine if you should consolidate your credit card debt. Many times, however, credit card consolidation is advised after all options are exhausted. 


Understanding Credit Card Consolidation 

The idea behind credit card consolidation means combining your entire debt into a single loan. It also means a common payment of all your creditors through a single payment each month. The following are ways you can consolidate your debt:

  • Going for a consolidation loan, or

  • Working with a debt management or debt consolidation firm. 


Credit card Consolidation: How Does it Work?

After taking a credit card consolidation loan, one will use the loan proceeds to settle the entire outstanding credit card debt. With this, you will not owe money on multiple credit card debts but pay a single lender. The payment amount is a factor of the entire amount you borrowed, the payment terms of the consolidation loan, and the interest rate.

A couple of finance companies, lenders, and bank subsidiaries can lend people money without collateral – called unsecured consolidation loans. People with good credit scores can consider consolidating their credit card debt to settle their debt. However, consolidation loans do come with their cons. 


Is Credit Card Consolidation a Good Choice?

Before concluding or deciding if a credit card consolidation is right for you, you need to keep in mind a couple of things. Here are some factors:

  1. Will you be able to pay your credit cards off?

Consolidating a credit card debt does not get rid of it. Even if your monthly payment reduces, paying off all you owe is not negotiable. As a result, people without a steady income, who cannot afford payment every month, might not even get back on track after consolidating their credit card debt.

  1. Will your interest rate be reduced from consolidating your credit card debt?

One of the highlights of credit card consolidating is getting a lower interest rate. With a reduced interest rate, you can lower your monthly payment, which will help you complete the payment sooner. 

However, if debt consolidation will not help you lower your interest rate, it is not worth the extra fees, stress, and cost. 

  1.  How long will the debt payment take if you consolidate?

At times when you consolidate credit card debt, the monthly payment reduces. However, don’t think that a lower interest rate made your payment go down. If what you will repay each month reduces, you will have an extended repayment period. 

You will take an awfully long time to repay your credit card debt if you extend the repayment term when taking a consolidation loan. Even though many people will love to have a monthly payment they can live with, the interest will be more over the loan's lifespan. 

As a result, review and understand the terms of any loan before you decide which is suitable for you. 


Credit Card Consolidation and its Consequence 

Ensure you are aware of the entire consequence of loan consolidation. You might be facing a high-interest rate, lengthy repayment period, or risk of losing your property if you default on any secured consolidation loan. Also, consolidation loans from financial firms and other companies on your financial report might not speak well to potential creditors as they might interpret them as an inability to manage debt problems. 

Above all, lenders offering consolidation loans often don't like giving information on interest rates until you complete the application. This makes it hard to shop and compare different interest rates.


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