Due to problems with the economy, and increasing rates of unemployment, consumers are becoming increasingly concerned about bad credit. Debt consolidation loans can help consumers reduce interest rates, avoid penalties, and avoid negative credit score problems. When choosing a consolidation loan for credit card debt help, consumers should weigh options carefully.
Debt Consolidation Loan Benefits
A debt consolidation loan allows consumers to eliminate individual credit line payments, and make a single payment each month, to a single lender. This action does not automatically close the credit lines, but only pays off the balance on each account. Merging all credit lines into a single loan can both be more convenient and less costly to the consumer.
- A single payment per month reduces the chance that a payment will be forgotten
- Each credit card payment has a different interest rate, fees, and payment amount. The larger loan has a single rate and payment amount, reducing confusion for the consumer.
- The loan used to consolidate debts may have a lower interest rate than the individual credit accounts, which saves the consumer money.
Credit Card Consolidation Risks
Credit card consolidation can be beneficial, but there are risks for the unwary consumer. A combination of self-discipline and education can avert these risks.
- Excessive fees and higher interest rates can make the loan more costly than the original lines of credit. In order to avoid this issue, consumers should compare current costs to the consolidation offer. Comparing consolidation offers to find the best possible loan can also result in a lower interest rate and lower payment for consumers.
- Credit counseling or debt consolidation offers may not be legitimate. There are, unfortunately, companies that prey upon individuals who are desperate to reduce monthly payments. Consumers should always research the company offering debt consolidation prior to accepting any offers.
- Consumers may run up additional debt after paying off credit cards with consolidation. Once the credit cards have been paid off with a larger loan, many consumers revert to the same habits that resulted in excessive debt initially. It is important to change these habits in order to prevent the unsecured debt from creeping up once more.
Avoid Bad Credit with Debt Consolidation Loans
Consolidating credit card debt offers both risks and benefits to consumers with mounting unsecured debt. Each consumer’s situation is unique, so it is vital to evaluate carefully prior to making major financial decisions, such as applying for a loan to consolidate debt. When used correctly, consumers can avoid bad credit through the use of debt consolidation loans.