Credit card consolidation is way of making debt management simpler by combining multiple debts into a single account. This restructuring aims to give you a lower interest rate and a monthly payment that is easier on your pocket.
Take note that with credit card debt consolidation, your debt does not really go away. What will change is that you owe that big amount to a single creditor.
If you will consolidate your credit card debt, it will be ideal to have a fixed repayment per month. The shorter the repayment period, the lesser it would cost you.
So, what are the pros and cons of credit card debt consolidation?
Here are the pros of credit card debt consolidation:
1. Debt payment looks and sounds simpler. Monitoring several accounts can be overwhelming especially if you have committed some financial blunders in the past. Credit card debt consolidation will just give you one bill to settle and this lowers your risk of forgetting about a bill and paying late.
2. Credit card debt consolidation can help improve payment terms. The bank or any other lender willing to restructure your credit card debts will allow you to tweak your payment terms based on your ability to pay. Make sure to negotiate for lower fees or removal of unnecessary charges. A lower monthly requirement will give you a good breathing room and an opportunity to start rebuilding your credit score.
3. Benefit of lower interest rates. You can pursue lower interest rates when you consolidate your credit card debts. If you have a good credit score, then there’s a good possibility this will be reality. Otherwise, you can ask the help of a credit counselor to help you achieve this goal.
4. You can’t use your credit cards. When you seek the help of a bank or a lender through debt management plan, your credit cards will be frozen. So, while you’re trying to pay off your balance, you cannot use your card. That’s a very good thing.
Cons of Credit Card Debt Consolidation
1. Not the real solution. Credit card debt consolidation will just give you a breathing room as it will give you lower interest rate and a more affordable monthly payment. However, you still have debt and it will not be gone in a snap. You need to get to the root of the problem and drop any bad financial habits you have in order to get rid of debts.
2. Debt consolidation can make you relax and commit a blunder. Again. You have to tell yourself always that your debt is not gone and you’re still paying for it.
3. You might use more credit. In case you use a personal loan to pay off your credit card debts, then your credit cards are clear and good to use. With this false sense of being financially sound, you might end up spending more and not realizing you are just adding more debt to what you already have.
4. It Can Cost You More. In the long run, if you do the math, some credit card debt consolidation programs might not be a win-win situation for consumers like you. You cannot focus on the lower monthly payment since that can be the culprit why you will pay more. The same is true for the lower interest rate that might cause you to have longer payment terms.
Everything has its good and bad side. Let us tell you about the pros and cons of credit card debt consolidation and basically everything you need to know if you are considering taking this route to fix your finances.