Many times the debts of the credit cards are about to go out of control and it is necessary to take action to avoid becoming over-indebted. A common repayment strategy is the consolidation of debts.
Through debt consolidation services, you get a loan to settle your credit card accounts and you are responsible for paying a single loan.
This strategy is not ideal for everyone, so you should inform yourself about the advantages and disadvantages it offers you to make the best decision.
What are debt consolidation services?
A typical debt consolidation services offered by a credit counselling agency is called a debt management plan. The team has experience in debt management and consumer credit counselling. Knowing this, you can receive a balanced evaluation and know if it is really the best program to help you achieve your financial goals.
Let us find the advantages and disadvantages of using Free Consolidation Services:
• Combine several payments in one: It allows you to organize yourself and the convenience of making a single monthly payment.
• Earn lower interest: If you have good credit, most of the options to consolidate your debt, either a personal loan or a line of credit on your home, offer you lower interest rates than those of credit cards.
• Reduce monthly payments: If the interest on your new loan is lower, it is very possible that your monthly payment is also lower. Also, if you pay on time and consistently, you would avoid any fees for late payments and for exceeding the credit limit.
• Pay 100% to your creditors: You would liquidate your creditors and preserve a positive payment history if the accounts have been in good standing with your creditor.
• It may cost more in the long run: In spite of obtaining interest and reduced payments, if the repayment period is extensive, at the end of the life of the loan you may end up paying more.
In addition, depending on the consolidation method you use, your total debt may increase with the addition of charges associated with the loan or fees for transferring balances from one card to the other.
• You can borrow more: Either by necessity or by will, if you reuse the cards you already paid, you would face paying the original debt plus any new debt.
• It may be more expensive: If you consolidate your cards with a secured loan, such as a line of credit on your home, failing your payments puts you at risk of losing your home or any other valuable possession you have used to secure your loan. You should avoid putting at risk things whose total value is greater than that of your credit cards.
• Negative effects on your credit: Consolidating debts can affect your credit score by changing the use of your credit. You do not eliminate the debt, but combine it and affect the balance of debt and available credit. If you close your paid credit cards, you also suffer your score.