Are you not able to decide whether or not debt consolidation can be the suitable option to pay off your credit card balances? If yes, then you should analyze the advantages and disadvantages carefully so as to decide whether or not it can be the most suitable option for you.
Here is a brief discussion regarding the advantages and disadvantages of debt consolidation, precisely credit card debt consolidation.
Advantages:
Only one payment every month – Whatever credit card consolidation option you choose, you can repay your entire outstanding balance just by making a single monthly payment. So, it becomes easier to remember and make just a single payment towards paying off your multiple debts.
Interest rates get reduced – You usually have to repay balances at a reduced interest rate irrespective of the consolidation option you opt for. If you transfer your balances from high interest card to low interest card, you can repay fast on a lower rate. Similarly, you will not take out a personal loan unless you get it at a reduced interest rate in comparison to the average interest rate on which you’ve been paying your credit cards so far. And, if you opt for a consolidation program, then the consolidation company will negotiate with your creditors to reduce the interest rates on your credit cards.
Credit score may get increased – When you pay off your debts in full, your credit score may get increased as the account statuses get updated as “Paid in full”. However, you should not miss any payments as otherwise, it will get reported in your credit reports as a negative item and will affect credit your score negatively.
Helps remain stress free – If you enroll in a credit card consolidation program, then you can remain stress free as your creditors and collection agencies are likely to stop calling you for payments, as they receive their first payment on the agreed upon terms.
Disadvantages:
Credit card teaser rate – Usually, the balance transfer cards come with a zero or low interest offer for a limited time period within which you need to repay your debts. Failing to do so, you’ll have to pay quite a high interest on the remaining balance.
May lose valuable asset – You may have to lose your valuable asset such as, your home (if you take out a home equity loan), if you fail to repay it within the stipulated time period. So, always assess your financial condition before taking out such a secured loan.
Irrespective of the disadvantages, credit card consolidation can help you pay off your credit cards within a definite time period just by making single payments, provided you make the required monthly payments on time. Otherwise, you might land into severe financial problems if you do not save and continue using your cards till you’re out of debt completely. So, plan a suitable budget, save as much as you can and enjoy financial freedom by paying off your credit card debt completely.