Is consolidating your credit card debts a right choice?

Is consolidating your credit card debts a right choice?

If your unpaid credit bills are piling up and you’re losing your sleep over it, now is the right time to opt for credit card debt consolidation.

What debt consolidation mean?

Credit card debt consolidation is a program that helps you to consolidate your multiple debts into a single loan, with reduced interest rate and lower monthly payment. Your outstanding loan amount may also get reduced. You need to negotiate with your creditors for consolidating your debts. You can take professional help to do the negotiation, on your behalf or you can negotiate yourself. Your monthly payment will be according to your affordability. You will have a fixed loan term also, thus, you loan will be paid off in a shorter time.

Requirements to qualify for consolidation loan

You need to produce the following things to the lender:

* Your last three months’ salary stubs
* Your last two years’ tax returns
* Copy of your monthly budget
* A cosigner or collateral

Pros and cons of debt consolidation loan

Credit card debt consolidation loan has many advantages and disadvantages.


* Reduced monthly payments: As your interest rate will be lowered and instead of paying multiple creditors you will have to pay a single one, your total payment amount will become much low and you can save money.

* Lower interest rate: If you take a home equity loan, you will get much lower interest rate. The loan you will take will be a secured loan, i.e. you will have to keep your home as collateral. In case you fail to make payments, your home can be taken away by your lender.

* Single payment: Instead of making multiple payments, with consolidated loan, you have to make a single payment, so, there will be no chance of a payment getting missed by mistake.

* Single creditor: You will now have a single creditor to deal with. So, for making any correspondence with your creditor, you have to make fewer calls.

* Tax benefits: If you take a home equity loan, you will get tax deductions on it.


* Tendency to get into further debts: Once you will pay off your credit card debts, you will be tempted to buy things again on credit and thus incur more debts.

* Total cost is more: As the loan term is longer, the total amount you are paying towards the loan including the interest is much more than the original debt amount.

* Chance of losing your home: As you have taken the loan keeping your house as collateral, in case you fail to make payments to you lender, your home can be taken away by the lender.

* Time will be longer to become debt free: As the interest rate is lower and monthly payment amount is also low, the loan term is long. So, you will take a long time to become debt free. You can avoid this, if every month you pay an extra amount along with your fixed payment and thus pay off the creditor faster.

You should consider the pros and cons and decide whether or not taking a credit card debt consolidation loan will be suitable for you.

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