Acquiring credit card debt can be overwhelming for most people due to the insane higher rates of interest. Not everyone can manage the debt taken on their credit card and the multiple monthly payments of dues on various credit cards. After a point in time, you will find your funds getting drained and the only option left is to secure another refinancing option. Needless to say, the high-interest rates of credit card balances can make anyone clueless and hopeless of the loan repayment, but thanks to debt consolidation, there is an easy way out.
With so many debt relief options available in the market, combining all your credit card debts into one and paying the cards off by taking a debt consolidation loan is the most viable alternative one can get in the present financial market. All you need is finding the right service provider from whom you can borrow the money and pay back the loan at a lower rate of interest. But, just like any other loan, securing a debt consolidation loan has its own share of pros and cons. The drawbacks of debt consolidation loans can be managed and are mostly based on your loan and financial situation. The advantages of consolidating your debts overshadow the setbacks.
The biggest question that arises while considering procuring a debt consolidation loan is that whether the option will hurt your credit score or not? To make things clear to you, here is a list of benefits and pitfalls of choosing credit card debt consolidation:
Pros of Consolidating Credit Card Balances
For most borrowers, taking a debt consolidation loan for getting rid of their credit card debts seems to be an effective choice. Here are some of the benefits that you should know:
1. You Might Get the Loan at a Much Lower Interest Rate:
Even though the unique selling point of a debt consolidation loan is its lower rate of interest compared to the other kinds of loans, the benefit somehow is dependent on your credit rating. If you possess a decent credit score, debt consolidation can turn out to be the best deal you can get during your enormous debt situation. You can get a debt consolidation loan at a reduced interest rate compared to that of the monthly loan repayment of your credit card debts. Given the fact that you have acquired multiple balances on different credit cards, the varying range of interest rates and monthly loan repayments can drain all your finances out. With a lower rate of interest that you attain after taking a debt consolidation loan, the monthly payment can be faster and easily manageable.
3. You Are Encouraged and Assisted by Professionals:
To get the best deal on a debt consolidation loan, you will have to do some homework and research on the best debt consolidation companies that also offer credit counseling. Working with experts who are seasoned with different loan situations and their management can help you a lot. It is not surprising that there is a wide range of options available when it comes to working with a debt consolidation service provider, but with little research, you can select the ideal one for you. Compare the interest rates these companies offer and go with the one that you find reliable and suit your financial needs the best.
3. Easy Tracking of Debt:
Another great advantage of acquiring a credit card debt consolidation loan is that you can easily monitor and manage your loans. It goes without saying that remembering different due dates and multiple loan repayments can be extremely difficult if you have procured loans on multiple credit cards. Since you will cut the number of monthly debt repayments with the help of a credit card debt consolidation loan, it will become much easier for you to manage the single monthly payment and you can smoothly track your debt situation.
4. Better Loan Repayment Structure:
When it comes to setting a term for your debt repayment, credit cards generally do not have a clear policy. You can never get out of your debt situation if you only keep paying off the required minimum monthly amount. As a matter of fact, your situation can even get worse if you keep utilizing the cards, as the debt amount will keep varying and increasing. With credit card debt consolidation loans, you can achieve a defined repayment term. This will give you an impression of when you will get out of your debt situation.
5. Recover Credit Damages:
The best part of consolidating your credit card debts is that it really helps in improving your credit score at times. By clearing off all the dues on your credit cards, you can ensure a lower ratio of credit utilization, which is a high contributing factor in improving the overall credit rating.
Cons of Debt Consolidation
The two biggest disadvantages of credit card debt consolidation can be easily avoided if you are mindful of your choices and ready to make the needful changes. Here are the drawbacks:
1. Firms Taking Advantage of Your Debt Situation:
As mentioned above, in order to consolidate your debt better and effectively, you will need to work with a professional debt consolidation company. There are certain businesses that keep an eye on cases like yours and are ready to make the most out of it by giving you false promises. Some companies often charge an upfront fee without even consolidating your debts first. Ensure getting the best advice and stay away from such unethical firms by doing proper research.
2. Not Addressing the Core Issues:
What made you carry outstanding balances on your credit card? Why were you unable to pay off your loans on time? These are some of the questions that you need to ask yourself in order to make sure that you do not experience a debt situation in the future. If you keep carrying balances on your credit card or borrow debts after taking a debt consolidation loan, you will be back to square one and all your efforts will go in vain.
Refinancing options always have their own set of proponents and opponents. With credit card debt consolidation, you have to be careful of your situation in order to make the most of it and enjoy all the benefits of consolidating your loans.