Are you struggling to manage all of your debt obligations? Can you no longer afford all your minimum payments on credit cards or loans? Have you missed payments due to overwhelming debt?
What if there was a way to combine your debts into one monthly payment and potentially reduce the amount you pay in interest or fees? Debt consolidation may be the solution for you. This guide to debt consolidation will help you better understand how consolidating your debts may be a good option to reduce or eliminate your current debt obligations.
Learn more about how consolidation works, what consolidation methods are available, and when choosing consolidation can be a good idea. You’ll also get a better understanding of how consolidating debt can affect your credit score and what you can do to consolidate debt with bad credit.
Debt consolidation is the debt relief strategy of combining multiple debt obligations into one monthly payment to simplify the repayment process for credit cards, loans, and other bills. Consolidating debts can help streamline your payments and make managing your debt less overwhelming. Consolidation is usually done using one of three methods:
Debt consolidation loans are typically used to merge multiple debts into one, which allows you to pay down your existing debts. With your other debts taken care of, you can focus your efforts into repaying the new loan.
The point of a consolidation loan isn’t to give you access to more money for spending. The money from the new loan is instead put toward your already existing credit card balances, loans, or other debts like medical bills. Usually, using a loan for consolidating debt gives you a good amount of flexibility in repayment, as well as a potentially lower interest rate than your current debts. However, taking out a consolidation loan can put you deeper in debt if you don’t have good financial habits to stay out of debt. Additionally, when planning to use a loan for debt consolidation, poor credit may make it difficult to get a good interest rate or to just get approved.Balance Transfers
A credit card balance transfer could be an effective debt consolidation option for credit card debt. The process of a balance transfer involves applying and being approved for a new credit card with low rates for balance transfers. This low interest rate is almost always an introductory rate, so make sure you read the fine print on any credit card applications to see how long the introductory rate lasts. Some credit cards even offer 0% interest rates for an introductory period on new cards.
Once approved, you transfer your existing credit card balances over to the new card. You’re then able to pay down your new combined balance with low or no interest charges for a period of time. Credit card balance transfers can make it easier to pay down balances because less of your payment will go toward interest charges.
The biggest drawback of balance transfers is the limited timeframe you have to pay down debt. New credit card introductory offers usually last between 12-18 months. This means you’ll only have a year and maybe a few months more to pay down your balance at the low introductory interest rate. Once the introductory period is over, your interest rate will go back up to normal credit card rates. According to the Federal Reserve, the average rate for credit card accounts that assessed interest was 17.14% as of May, 2019.
There’s also the possibility that you won’t be approved for a new card. You may not be able to consolidate credit card debt with bad credit by using a balance transfer. Additionally, many credit card companies charge a fee for balance transfers, which may make a balance transfer less appealing.Other Consolidation Options
Luckily, there are other options for consolidating debt besides applying for loans or credit cards on your own. Debt relief companies often provide debt consolidation services as part of their debt relief options. A debt relief company can help you determine the best method for consolidating your debts by creating a plan to combine and pay down the money you owe. Certified Debt Specialists can help you stay on track with your debt consolidation plan. They can help you explore options for debt relief and provide the resources and information you need to determine if consolidating your debt is a good choice.
Consolidation can be an effective method for paying down or potentially eliminating debt. If you have the discipline to stick to your consolidation plan, you could see your debts reduced in a few years.Benefits of Debt Consolidation
There are many benefits to consolidating your debt. With the right consolidation plan, you could possibly get on track to paying off your debts completely. Benefits of consolidating include:
It’s common for your credit score to drop when you first start a plan for consolidation. When consolidating debt, your credit score is impacted by hard inquiries from lenders for potential debt consolidation loans or credit cards. Additionally, opening a new account often lowers scores due to the short amount of time the new account has been open.
Likewise, if you transfer the balance on a credit card and cancel your other cards, you will have less overall credit available and be using a higher percentage of your credit. Credit utilization can greatly affect scores in the short term.
However, many people see their credit score eventually go up after consolidating debts. After the initial dip from opening an account or canceling old accounts, credit scores may increase over time due to the following:
When it comes to debt consolidation, bad credit can possibly limit your options. Having poor credit could reduce your chances of being approved for a new account. It may also leave you with less desirable terms for new consolidated debt option than your current individual debts. If you’re hoping to consolidate debt with less than ideal credit, you still have options via secured loans, secured credit cards, or consolidation plan through a debt relief company.
Finding the right debt relief company to help you create a program to consolidate your debt is important to the success of your consolidation. Unfortunately, there are many scammers and frauds who set up fake debt relief companies to prey on people who are ready to take the necessary steps to get out of debt.
If you receive a call or notice from someone claiming they can help you consolidate your debt, make sure it’s a reputable debt relief company. Trustworthy companies won’t require you to pay upfront or make any promises of debt reduction. Instead, a reputable debt relief company should show you options for debt relief and help you understand how each option works.
To protect yourself from debt relief scams, work with a top-rated debt relief company that has experience helping people make efforts toward reducing debt. Most of the top debt relief companies have a large amount of positive online reviews from actual customers. This can help you verify the trustworthiness of a company.
At Accredited Debt Relief, we understand how overwhelming it is to be in debt. Our goal is to work hard to meet the needs of our customers by putting your best interests first. By taking the time to explore all of your debt relief options, we help you find the best solution for your financial situation.
With an A+ rating from the BBB, we’re committed to helping customers with honesty and ethical business practices. In addition to our lengthy positive reviews and proven results, Accredited Debt Relief is an accredited member of the American Fair Credit Council (AFCC). Accredited Debt Relief has years of experience in debt relief. Our Certified Debt Specialists have the necessary knowledge and expertise to help you find the right program for consolidating or relieving your debt. We partner with debt negotiators and consolidation professionals who have helped people just like you to lower or possibly eliminate your debt.
Learn more about your options to consolidate your debts by contacting Accredited Debt Relief today. We offer free consultations so you can understand all of your options without feeling pressured.