Is Credit Card Consolidation A Good Fix for Your Debt Problems? Skip to main content

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Is Credit Card Consolidation A Good Fix for Your Debt Problems?

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Credit card debt

Is credit card consolidation the best thing for you?

Image Source: Flickr User frankieleon

It’s easier than you might realize to get in over your head with credit card debt. If your credit card debt has spiraled out of control and you can only pay minimum payments each month, you’re in a debt crisis. How do you get yourself out of this debt dilemma? You may have considered credit card consolidation. Here’s a look at the pros and cons of this type of debt resolution and how it can affect your wallet, credit score and financial future.

How does excessive credit card debt happen?

At first, you may use your cards sparingly, but then your income dips or you have unexpected expenses and charging bills seems like a good idea. But then, it becomes a habit. Once you build up balances, interest piles up. Then if you miss a payment, you’re hit with a late fee. Then if you max out your cards, there may be over-limit fees. All of this leads to debt stress that needs a solution.

What is credit card consolidation?

Simply, credit card consolidation is a way to combine all your credit card debt into one lump. It can be accomplished by converting the balances to a loan or through using a debt consolidation firm that manages your credit card balances. The loan method pays off your card balances, and you simply pay your loan. With a debt consolidation company, they negotiate with your creditors, and you pay them.

What are the pros of credit card consolidation?

  • Credit card consolidation, via either method, means instead of juggling multiple payments, you will have a single payment to make each month.
  • If done smartly, you should be able to get lower interest rates on the debt through a consolidation loan or via a debt management firm.
  • Your monthly payments may be lower because of the lower interest rate, and you may end up paying less in the long run after the debt plan is done.

What are the cons of credit card consolidation?

  • With a credit card consolidation loan, your cards will have a zero balance, and you might be tempted to start using them again and end up in double the debt.
  • Some credit consolidation firms charge a stiff fee that can wipe out any interest advantage you might get. This can make your problems worse instead of better.
  • As part of a credit card consolidation plan, you may have to agree to close your credit card accounts that can wreck your credit score that was likely already suffering.

What are the alternatives to credit card consolidation?

Credit card consolidation does not lower your overall debt, so if you’re struggling to make minimum balance payments, you may still struggle to pay under the new plan. Plus, many auto and mortgage lenders view a debt consolidation plan (which will show up on your credit report) the same way they see bankruptcy. With this in mind, why not consider bankruptcy instead and get more sweeping debt relief.

How is bankruptcy different from debt consolidation?

If you use Chapter 7 bankruptcy, it’s not debt consolidation, it’s debt elimination. Credit card balances can be 100% wiped out, and you won’t have to make any future payments. Plus, within a few months, you can begin to rebuild your credit and get your finances back on track. With Chapter 13, you get more time to pay off back balances on secured debt – such as overdue house or car payments – and you may be able to pay far less on your credit cards than under debt consolidation.

To find out more about how bankruptcy can get you out from under a mountain of credit card debt, contact the Law Offices of John T. Orcutt. Call +1-919-646-2654 for a free North Carolina bankruptcy consultation at one of our offices in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.

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