Debt consolidation can be the right option for you when you are struggling to repay your multiple credit card debts. By consolidating your debts, you can pay off your multiple bills with ease. Here are 3 ways to consolidate your debts and the pros and cons of choosing the options.
1. With the help of a consolidation program
When you enroll in a consolidation program, the company assesses your financial situation and decides upon a monthly payment which you need to pay to the company every month. In the meantime, the consolidation company negotiates with your creditors to reduce the interest rates on your bills. When you make the payment, the company distributes the payment amongst your creditors on your behalf.
A. Complete guidance - The consolidation company offers complete guidance to repay the debts.
B. One monthly payment - You need to make only one payment to the consolidation company every month.
A. Beware of spam companies - Beware of spam consolidation companies which may charge upfront fee for the consultation.
B. Need to pay professional fees - You need to pay a professional fee for the services offered.
2. With the help of balance transfer method
If you opt for this method, then with your creditors' approval, you can transfer your high interest debts to a relatively low interest card or take out a zero or low interest card for the purpose.
A. Interest rates get reduced - You can pay off your debts fast since you need to repay debts at zero or low interest rate.
B. One single monthly payment - You have to make only one monthly payment towards paying off your multiple credit card bills.
A. May spend more - You may end up spending more on your other credit cards since all your outstanding dues get transferred to one card.
B. The interest rate may increase - If you take out a zero or low interest card and transfer your balance into this card, then you need to repay the outstanding dues within the zero or low interest period; the interest rate will be very high after the lapse of the zero or low interest rate period.
3. With the help of a consolidation loan
You can take out a secured or unsecured consolidation loan and replace your existing debts with this new loan. What happens is, you take out a new loan and pay back your existing debts with the new one and thus replace your existing bills with the new consolidation loan.
A. One payment every month - Since you replace your multiple debts with one single loan, so you need to make only one monthly payment to repay the new loan.
B. Lower interest rate - The interest rate on the new loan is usually lower than the sum total of the interest rates on all your debts.
A. You may lose property if secured loan - If you take out a secured consolidation loan in the form of a home equity loan, then you may lose your property if don't repay the loan on time.
B. May have to pay more if loan term is higher - If you take out a loan with a relatively higher loan term, then you have to pay more on the interest payments.
It can be summarized by saying that debt consolidation can be a suitable option to repay your debts and you can negate the cons only by planning a budget and using your money wisely. While getting help of consolidation, you need to remember that consolidation is not the end of your debts, but it can lead you towards getting out of debt. So, save money and use it towards making the debt payments so that you're out of debt completely within a stipulated time period and make a new start to your financial life.