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Credit Card Debt Consolidation Explained

credit card debt consolidationAre you facing an ever growing amount of credit card debt? Are those TV commercials about consolidation starting to sound better and better? Before you make any calls, let’s explain more about credit card debt consolidation.

What is Credit Card Debt Consolidation?

Credit card debt consolidation groups your debt into one large loan as a repayment method. The new loan usually has a more attractive interest rate than your existing debts, and allows you to have only one outstanding loan rather than many. It would look something like this:

Credit Card Debt #1 +Credit Card Debt #2 + Credit Card Debt #3= 1 New Consolidation Loan

As you repay the consolidation loan, you will make monthly payments. The payment amount will be lower than your original debt payments combined. While your payment is lower, you will spend more money since there will be more interest over the extended repayment window.

Pros & Cons of Debt Consolidation

The pros of consolidating credit card debt:

  • 1 monthly payment
  • A more affordable payment than with separate debts
  • Easier to manage

The cons of consolidating credit card debt:

  • Pay more money in interest
  • Takes longer to repay the debt
  • May not see as much progress as paying off separate debts
  • Does not offer any help in changing bad financial behaviors

Alternatives to Credit Card Debt Consolidation

If credit card debt consolidation doesn’t seem like something you want for your finances, consider an alternative, like a debt management program. A DMP is typically offered by a credit counseling agency to those who qualify. In this plan, the agency will secure lower minimum monthly payments or lower interest rates from creditors, making repayment more feasible and affordable for you. They may also help you create a budget and educate you on a better financial framework.

A DMP is not a new loan. You will make one monthly payment to the agency, who then and disburses it to each of the accounts. For providing this service, the credit counseling agency typically charges a monthly fee. This option may be less expensive than a typical debt consolidation plan. To help you find a reputable company, watch this video on what to look for in a credit counseling agency.

While credit card debt consolidation has some benefits, there are some serious issues to consider. It’s important that you do research so you are able to weigh all the options carefully.

To learn more about budgeting and debt management options, call 800-769-3571 to speak to a certified credit counselor at American Consumer Credit Counseling.

ABOUT AUTHOR / Michelle

Michelle is a regular contributor to Talking Cents. She has taken several financial courses on debt management and is ready to circulate what she has learned from them as well as lessons from her own life- family to DIY projects to student loan debt.

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