Have you ever stopped to think that credit card debt is really a loan? It’s what’s called an unsecured loan because you are not required to put up any collateral to secure it. You filled out an application and if you were approved that new credit card showed up in your mail in just a few weeks or even days. Of course, if you pay off your balance at the end of every month it’s not a loan. In fact, it has given you anywhere from 40 to 60 days of interest free credit.
The credit card companies call people who pay off their balances every month “deadbeats.” The conventional definition of the word deadbeat is “a person who tries to evade paying debts.” But for credit card issuers it’s just the opposite – it’s people who evade paying interest and interest is how credit card companies make money.
The objective of credit card consolidation
Your objective in credit card consolidation is probably to reduce your payments to a smaller amount. You may also want to consolidate multiple monthly payments down into just one. You can achieve both these objectives using several different options. But it’s important to understand which of them makes the most sense so that you won’t do it wrong.
A debt consolidation loan
This is a quick and easy path to credit card consolidation. If you can get a loan – either secured or unsecured – you could pay off all of your credit card debts practically instantly. It’s almost certain that you would achieve your first objective, which is that you would have a lower monthly payment than the sum of the monthly payments you’ve been making. You would also achieve objective number two as you would now have only one payment to make a month instead of the five, six or more payments you are currently making.
Why this is a wrong way
While getting a quick loan and paying off your credit cards can seem very attractive, it’s a wrong solution. The reason for this is because you’re simply transferring debts from several different credit card companies to a new lender. It’s likely that it will take you anywhere from 4 to 10 years to pay off that new loan and it will cost you more in interest over its term. Plus, you have done nothing to reduce your debt. If you owed a total of $12,000 to various credit card companies and get a debt consolidation loan you will still owe that $12,000.
Consumer credit counseling
Another popular way to do credit card consolidation is via consumer credit counseling. This is where you can get what’s called a debt management plan or DMP. The short explanation of a DMP is that the credit-counseling agency will assign you a counselor that will help you determine exactly how much you can afford to pay the credit card companies each month. He or she will then contact the credit card companies to see if they will accept those payments. If they do agree you will then be put on a plan whereby you’ll send a payment each month to the credit counseling agency and it will then distribute the funds to the credit card companies.
Why this is a bad solution
On the face of it credit counseling might seem like a good way to achieve credit card consolidation. However, there are several problems with it. First it will probably take you as many as five years to complete your plan – which is why nearly 50% of the people who sign up for a DMP never finish theirs. Secondly, you will be required to give up all of your credit cards and if you fail to make a payment or violate any of the terms of your plan, the counseling agency could cancel it and you could easily end up in worse shape than before.
The right way −Credit card consolidation through debt negotiation
Neither consumer credit counseling nor a debt consolidation loan can actually reduce your debt. It just moves it around. However, debt negotiation as practiced by companies like National Debt Relief can actually get your debts both reduced and consolidated. In many cases, those debts can be reduced by 50% or even more.
How debt negotiation works.
Debt negotiation is an option for credit card consolidation that’s become very popular since the year 2000. The simple explanation of how it works is that you contract with a debt negotiation company that then negotiates with your creditors to get your debts reduced and paid off.
As few as two years
Another advantage of debt negotiation is that you will have a payment plan you could complete in as few as two years – depending on the size of your debt. Can’t you just imagine how you would feel if two years from now you were completely free from those credit card debts?
The con of debt negotiation
Make no mistake about the fact that debt negotiation will have a negative affect on your credit score. However, it won’t be as serious an effect as if you were to file for bankruptcy.
If you owe more than $7500 and are wondering if you would be a good candidate for debt negotiation call National Debt Relief or some other trustworthy debt negotiation company to learn if you would benefit from this option. It could be the best call you make this year.