If you are looking to get out of debt, there are a number of debt relief options available to you. You may have considered credit counseling or, depending on the severity of your financial situation, even filing for bankruptcy. Other viable options for getting rid of debt are consolidation loans or credit card consolidation. Before making a decision, it is always important to consider the benefits and risks associated with any debt relief strategy.
Consolidation Loans vs. Credit Card Consolidation
What are Consolidation Loans?
Do you have a number of outstanding debts or loans with multiple creditors? Consolidation loans may seem like a good idea. When you take out a consolidation loan, you are taking out an additional loan to help pay off the rest of your outstanding debts. For a consolidation loan to be beneficial, it’s important to secure a lower interest rate than you currently hold. Otherwise, you will continue to struggle to pay off your debts (including your new consolidation loan).
Consolidation loans have many advantages and disadvantages, and for many people consolidation loans may not be the best way to get out of debt. While consumers are seeking relief from financial hardship, sometimes credit card consolidation loans only add to the problem. Many consumers looking to consolidate their debt do not have high credit scores, and therefore do not qualify for the lowest interest rates. And, many companies add hidden charges and fees for their own benefit, leaving consumers in an ever deeper hole than before.
Credit Card Consolidation
Another debt consolidation option is consolidating credit cards. Consolidating credit cards usually means transferring balances to a new card at a lower interest rate or taking out a loan to pay off all your cards. The draw for many consumers is that some credit card companies will consolidate credit card debt at low or no interest for a period of time. But don’t be fooled – nothing comes for free! These offers are for a limited time and involve significant fees. And, after the offer has ended, the interest rates can be very high. So while consolidating credit cards sounds great at a first glance, it can be a risk.
It’s always important to know all the risks before making any financial decision. Consolidating credit card balances to one card or using a loan can be risky because, if you need to borrow additional money, it may be tempting to use one of the accounts with a zero balance. And, consumers often find that their balances just continue to rise because they haven’t looked at how they got into debt to begin with.
When Looking for Debt Consolidation Options…
- Contact a credit counseling agency to help determine consolidation options, the potential cost of consolidation and get further debt advice.
- Choose the best consolidation option that will work with your particular financial situation. Keep in mind the terms and costs discussed with counselor.
- Review all terms and conditions of your consolidation option before you move forward.
- Make the official commitment and follow through on your obligations.
If you would like more information, schedule a free credit counseling session with us today.