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Credit card consolidation can be extremely beneficial in cases where your debt to income ratio is so high that it negatively affects your credit score. Other cases which may benefit from the service are those who find themselves spending too much per month on only minimum credit card payments.
Utilizing this service can make your life easier, lower your monthly expenses, and pay off your debts sooner than expected. Companies which offer this service can negotiate lower interest rates and minimum payments, as well as provide you a once-monthly payment program.
For a small fee, credit card consolidation companies will halt all collection attempts. They will also collect a monthly payment from you, then disperse the newly agreed upon payments to all of your creditors. This will not only reduce your stress levels about paying your creditors, but will also improve your credit rating over time.
Although your credit report will reflect you are in a consolidation program, many are able to obtain auto or home loans after a few months of payment history. New creditors want to see that you are making a consistent effort on paying off your unpaid debts.
As an example, if you are paying $200 per month on a credit card which charges an 18% APR on a $10,000 balance, this could take you several years to pay off. Very little, if any, of your monthly payment is actually applied to the principal balance in this case.
Alternatively, a credit card consolidation company may negotiate a 0 to 10% APR, and possibly a lower monthly payment. The much lower interest rate will allow for more of your payment to be applied toward your principal, thus paying off the card within only several months’ time.
If you have recently lost your job or other source of income, or had extenuating circumstances which require a higher percentage of your wages than normal, one of these programs may be just what you need. Several agencies are available to provide the service as either a non-profit or for-profit business.
Fees for credit card consolidation may be paid upfront in one lump sum, or paid in smaller amounts over time on a monthly basis. Typically, this fee is simply added to your payments which will be applied toward your unpaid balances.
Debt consolidation services will also encourage you to reign in your expenses, start a savings account, and establish a healthy credit rating upon completion of the program.