What to Know When Considering Debt Consolidation

What to Know When Considering Debt Consolidation



A lot of Americans have debt, some have more financial obligations than they can handle. According to the New York Federal Reserve, American consumer debt reached 14.35 trillion by the first quarter of 2020. As a result, many people are looking for options for settling their growing debts.

Debt consolidation can be a smart approach. The process combines multiple high-interest obligations like credit card debts into a single responsibility for easy repayment. Credit card consolidation is most beneficial when the interest rate on the consolidation loan is lower than the rates on your current debts.

What To Know When Considering Debt Consolidation

Debt consolidation can also help you maintain or increase your credit score. However, as you will learn about credit card consolidation at Freedom Debt Relief, you should choose the lender carefully

Here’s what you need to know before opting for credit card consolidation:

Fake Claims

Some debt refinancing providers may promise more than they can deliver. For instance, some may promise to pull you out of debt irrespective of the amount, which can be unrealistic. Carry out your research and go for licensed providers.

Beware of companies that are not willing to disclose the repayment period and interest rates.  Many dishonest debt-relief providers top the list of consumer complaints as per the Federal Trade Commission.

Interest Rates

Understanding the interest rates is as vital as knowing the amount of your monthly payment. Many lenders are happy when you keep on piling high-interest loans – they benefit more; that’s why credit card consolidation is beneficial.

One perk of debt consolidation is a lower interest rate than your current rate. However, there is no guarantee that the interest rate will remain lower even when you qualify. Your interest rate depends on your credit score and past repayment behavior.

Also, some credit card debt consolidation companies may have “low-interest” deals, especially before or after the holiday, to entice many shoppers who tend to overspend during this period. These rates may only last for that period and eventually increase.  Make inquiries to know for sure what will be expected of you

Debt Consolidation is not Debt Elimination.

It is worth noting that credit card consolidation only simplifies your current debt condition but does not eliminate it. You will still pay off the loan at the end of the day — albeit at a lower interest rate.

If you are uncertain of the benefits of refinancing your loan, seek expert advice from an accredited financial services provider. They will help you plan the repayment of your credit card loans better by discussing a wide range of helpful services.

Understand Additional fees

Some rogue lenders don’t disclose additional charges that come along with their loan terms. Closing fees, upfront fees, original costs are some of the extra fees they may charge. Before opting for credit card consolidation with any company, find out if there are hidden charges you will incur. After all, you are looking for ways of minimizing your current loan.

Debt Management Plan

If you have multiple high-interest credit cards, a debt management plan may be a good first solution. A credit-counseling agency may offer this as a solution that could help manage interest rates. Credit counseling agencies are non-profit organizations that provide many borrowers with financial education, help with budgeting, and offer debt management plans to eligible clients.

Other credit card consolidation methods are:

  • 0% Interest Balance Transfer Credit Cards
  • Using home equity for credit card consolidation
  • Debt settlement

If you are still wondering what to know when considering debt consolidation, seek professional advice from certified debt consultants. Companies like Freedom Debt Relief will take you through the ins and outs of resolving debt issues and help you find the best option to repay your credit card debts.

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