If your credit card debt has skyrocketed out of control, you probably have thought of or heard about credit card consolidation. The process varies depending on the individual, but the general idea is to merge all of your debts into one lump sum through a credit card consolidation company. In many cases, this can lead to the negotiation of some of your debts and can reduce your overall monthly payments and the total amount you owe. Let’s explore the main aspects of credit card consolidation to see if it is the right choice for you.
Your Primary Options
Generally speaking, there are three main options you can use to consolidate your credit card payment. The most often used version is going through a consolidation firm. These firms work to lower your monthly payment by negotiating on your behalf with your creditors. There is typically a monthly fee added onto your debt for this service, but almost always is the total amount paid each month lower than what it was initially. The second option is taking out a home equity line of credit. This can be used to pay off all of your credit card debt, leaving you with just one loan to pay back. There is also the option of moving your credit card debt to a 0% interest rate credit card.
Downsides to Consolidation
When it comes to utilizing a consolidation company, the biggest disadvantage you may face is a ding to your credit score. By settling debts with existing creditors, these companies will view your debt in a similar way to a bankruptcy, which can lower your credit score with the major credit bureaus. Using a home equity line of credit may get the credit card debt collectors off of your back but can leave you vulnerable with all that debt attached to your house. In the event of a default, you could lose your home and still owe the debt. Finally, 0% interest credit cards normally do not stay at 0% forever, and may not be the best solution for paying off large amounts of debt.