Practicing as a credit counselor, this is a typical question I came across a few days back from someone who was neck deep in debt.
“I have racked up a fair lot of debts through credit cards, and it is a painful affair to pay down all these by wrangling multiple monthly bills with varying interest rates. I have heard it from someone that debt consolidation can help you get rid of this troublesome situation and may offer an interest rate lower than that of credit cards. Should I avail it to pay off all my credit card debts at once and get a low-interest payout to be made every month?”
Further details: The lady who raised this question was a female fashion enthusiastic who never missed a chance to purchase the latest trendy dresses and accessories. Every time she used her credit card without any forethought and finally ended up this way.
This is not a standalone scenario, and there those who are passionate about fashion and shopping, and they often face the same situation with credit card debts. That is why a discussion on the topic will surely help the readers get a better insight about when debt consolidation makes sense and when it doesn’t.
When debt consolidation doesn’t make sense
No doubt that debt consolidation loans are highly attractive to those who are suffering from overwhelming debts. Getting rid of all your troublesome credit card debts with a single payment is really an exciting affair, but it is not always perfect.
You need to remember that debt settlement loans are also financial products, which don’t come to you as charity. The lenders also want to make money out of that deal, so be diligent.
Do proper calculation of your credit card debts and interest rates to figure out how much and how long it will take you to pay those off at the current rate. It is a fact that an average 5-year lower-interest debt consolidation loan may cost you more than a short-term credit card loan, if paid on time.
Debt consolidation has nothing to do with the behaviors which put into debt trouble in the first place. They simply add a new creditor to your account to pay off. So, you need to assess your situation and also explore the scope of negotiating with your existing creditors about the interest rates, in order to identify worthiness of debt consolidation as an option for you.
When consolidation makes sense
If you are hopeless about your debt situation and unable to negotiate any lower interest rates with the credit card companies or other creditors, debt consolidation may be a good solution to think of. Similarly, if you are seriously troubled with high monthly payments and too many bills to handle, debt consolidation will work in your favor.
Combined with a proper repayment plan and expert credit counseling, debt consolidation may help you to pay off your debts at a fraction of the original liabilities. It goes without saying that there aren’t situations in which consolidation loans offer the debtors the needed breathing room to better organize their finances. So, as any other crucial financial decision to take, debt consolidation also requires an in-depth analysis and fact finding to take a decision in its favor.
Author Bio: As a leading debt consultant for credit card consolidation and debt settlement, George Orwell used to write blog articles to discuss about debt consolidation and other loan options.