How does Credit Card Consolidation Work
When you are overwhelmed with credit card debt, you are left to wonder how you will manage to pay it down. There are different options that individuals can consider when they are facing with thousands of dollars in terms of credit card debt such as debt management, debt settlement, debt consolidation and even bankruptcy. These plastic cards seem like a blessing initially, but come off as a curse when too many bills are racked up quickly. Several advantages can be reaped by individuals if they opt for credit card consolidation rather than the other options available. However, there are several things that should be considered before the procedure of credit card debt consolidation is begun.
First, individuals need to understand the primary function of consolidating credit card debt. It is simply to combine the debts of multiple credit card payments into one monthly payment. In this manner, individuals will typically have to pay a lesser amount in terms of fees and interest. People will be able to pay down their debt at a much quicker rate than before if they choose to consolidate their credit card debt. It is said to be a good solution for individuals when they wish to get rid of their debt, but without having any negative impacts on their credit report.
Furthermore, there is a wide array of methods that can be used by individuals for consolidating their credit card debt. People can move debt into a single account for the purpose of taking advantage of low interest or zero interest credit card balance transfers. Individuals have the option of taking out a home equity loan if they have equity in their homes or are a homeowner. The credit cards can also be paid down by choosing to apply for an unsecured line of credit or personal loan. Any of these methods can be chosen by people for credit card consolidation.
Once the method of consolidating the debt has been chosen, the next step for individuals is to determine the balance that’s owed on each account and this they can do by calling the creditors. Each creditor can be paid in full with the help of the consolidation loan. After the accounts have been paid, individuals also need to decide whether they wish to leave the account open or close it. Either way, they will only have one single loan, which they will have to pay off and make only one single payment each month.
However, people often have the misconception that debt consolidation, settlement and management is the same thing. Debt management and credit counseling usually involves consolidation via a third party. Payment has to be made to the counseling company, which distributes it amongst the creditors. They may also negotiate with the creditors for lowering the interest rate or reducing the balance and charge upfront fees for this service. But, this can have negative impact on the credit rating of individuals. Therefore, instead of choosing this road, they should go for credit card consolidation.