How to consolidate credit card debt on your own
Many borrowers have not just one, but several credit debts at once. Having two or more current outstanding loans is, of course, a serious financial burden. In addition, the process of monthly payments makes it more difficult – several creditors mean several payments to be made.
Today, some financial institutions offer borrowers to consolidate loans into one with a help of credit card debt relief loans. What is meant by this? What are the features, as well as the advantages and disadvantages of consolidation loans?
What is credit consolidation?
Consolidation is a combination of all debts into one, where the debtor combines loans received in different financial institutions into one big loan. The need to combine current loans arises in cases where the borrower pays the debt to several banks. Consolidation allows you to create one total loan, and thus make the process of debt repayment more convenient.
A financial institution that consolidates all the borrower's credit debts provides it with funds to pay off current loans. The borrower still owes the money, but now he makes only one payment and usually with better conditions. It is possible to take a debt consolidation loan from a bank, including one that you already took a loan from, or turn to debt consolidation loan companies.
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Credit consolidation loan advantages
The positive aspects of consolidating any loans include the following:
- Saving time on a monthly procedure for repaying a debt. By consolidating all of its current loans with a credit card consolidation loan, the debtor gets rid of the need to send payments to various financial institutions. This in turn reduces a chance of getting problems associated with overdue payments;
- Opportunity to save on the final amount paid in interests. A new credit card debt consolidation loan, which combines all debts, can be taken on more favorable terms - with a lower interest rate. Thus, consolidation is a great way to reduce the cost of all debts at once;
- Adjustment of the monthly payment. Combining existing loans makes it possible to change the scheme of repayment of the borrowed funds. Namely - to adjust the payment amount in the necessary direction. The terms of a new loan may allow changing a less advantageous repayment scheme to a more optimal one.
- Convenience to the debtor. The more outstanding loans, the more problems. And this is due not only to an increase in the financial burden, but also to its distribution. The borrower can simply be confused how much he owes, and to which bank he should be making a payment at the moment. After the merger of debts, the debtor continues to pay borrowed funds, but only to one bank. At the same time, he reduces the likelihood of debt increase as a result of missed or late payments.
Disadvantages of debt consolidation
Considering the consolidation of debts, one should be aware of the shortcoming of this option. One of them is a limited number of banks that are ready to consolidate all customer loans, especially if you have bad credit history. A lower interest might not always mean less total debt if the loan is took for longer terms.
In addition, the negative aspects include difficulties in negotiating with the original creditors. Not all financial organizations agree to transfer debts of their clients to third-party banks. In addition, the consolidation of loans involves an early repayment of the corresponding debts, which can cost a borrower.
Another important disadvantage is the additional costs and fees associated with getting a consolidation loan. However, if you turn to the right debt consolidation company, it can effectively negotiate with all your creditors and find or propose a debt consolidation loan that will make it reasonable to take it in the first place.