Debt consolidation programs for credit
card debt, notably debt settlement and credit
counseling involve
negotiating with credit card companies to reduce interest, overall
payments, and/or the balance owed.
Advantages of Credit Card Debt Consolidation include:
- Elimination or reduction of accrued interest and penalties:
When debtors default on any account, the interest and financial
charges are stacked over the debt. Hence the total debt amount
continues to grow like mushroom. Debt consolidation program
eliminates the portion of your total debt built up by accrued
interest and other financial charges. The total debt amount
is reduced consequently.
- To make it clear, if a $2000 debt has piled up to $5000
where the $3000 is due to the interest and other penalties,
then consolidation first eliminates $3000 from the debt.
So now you owe:
$5000 - $3000 = $2000
- Single monthly payment for all the debts: Debt consolidation
acts like an umbrella that covers all the unsecured debts, like
credit cards, medical bills, utility bills and offers one monthly
payment for all the debts. You have to pay one payment to the
consolidation company every month and the company will disburse
the fund to all your creditors. Thus you need not remember the
payment dates for all the accounts any more and the chance of
being late is minimized.
- Reduced rate of interest: Counselors working in the consolidation
program negotiate with the creditors and turns up with a much
lower rate of interest. This way the debts are restructured with
new interest rates and the minimum payments are also less than
what used to be earlier.
- For example, you have three credit cards
with 18%, 12% and 9% rate of interest. Average rate of
interest you have been paying: (18% + 12% + 9%)/3 = 13%
- After consolidation, the interest rates become 12%, 10%
and 7% respectively. Now the average rate of interest becomes:
(12% + 10% + 7%)/3 = 9.66%
- Now if you owe, $5000, then the reduced rate of interest
would save more than $1500 for you.
- An effective repayment plan with budgeting tips: Counselors
prepare a repayment plan for the debtors willing to consolidate
their debts. The repayment plan is really helpful and let consumers
save some bucks for emergency; hence the chance of getting default
on debt consolidation program is lessen.
- Your debt free life is accelerated: People tend to pay
minimum on their credit cards and revolve the balance to successive
months. This elongates the indebted period infinitely. Even
if anyone pays little more than the minimum, it might take
12 – 15
years to become debt free. The result is, you keep paying more
and more to the credit card company. A successful debt consolidation
program can make one debt free within 2 to 4 years and saves
some money for you.
- Get rid of collection calls: By placing your debts under
debt consolidation program you can avoid harassing collection
calls too. The consolidation company you are working with will
negotiate with your creditors and collection agencies on your
behalf and notify them that they will be representing you from
then on. This is definitely going to nurse your headache.
- Obtain a good credit report: Late payments, defaults and
charged-off accounts make credit report ugly and your score
goes down consequently.
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