While debt consolidation is known as one of the most accepted debt relief programs, it is wise to get more advice before you enroll in the program.
Debt consolidation, in plain English, is you take out a new loan to pay off your unsecured debts. Instead of making several payments to different creditors, you only have to make one easy payment, which often combined with lower interest rates, to your consolidation company.
Although you may be able to get a lower interest rate and a lower monthly payment with your new loan, what these companies may not tell you is that you will pay back the entire balance of your debts you owe, plus interest. It typically takes many years to do so.
Most of time, this is seen as an option for controlling debt; however, it may not be a practical alternative for those who have been struggling financially and already in need of credit card debt help.
What to avoid
Don’t miss out a payment or make a late payment. Don’t do any balance transfer while you’re in the program. Try not to make major purchases while you’re in the program. Don’t apply for new loans/credit, if you’ve enrolled in the program. Never charge your credit cards close to the credit limit.
How does it affect your credit?
Any time you take out a loan or spend money on a credit card, your credit score will suffer as your Debt-to-Income ratio will increase along with your risk factor. Besides, if you are using a debt consolidation company, this is reported to the credit agencies as you were not able to handle your own affairs and will affect your credit rating. Additionally, many of the debt consolidation agencies are nothing more than another way for credit card companies to disguise their attempts to collect debts.
I hope these quick debt consolidation advice will help you make an informed decision on your debt relief choice.