Posts Tagged ‘credit card debt consolidation loan’

How Does A Credit Card Debt Consolidation Loan Work?

There are basically two ways a credit card debt consolidation loan works – the first options is where you hire a debt consolidator to manage your debts on your behalf while the second option is where you do it yourself. There are several factors that you must take into account in order to decide which option is the best fit for your specific situation. The process of consolidation entails a lot of hard work, such as strict budgeting, qualifying for a new loan, negotiations with your existing lenders, and an array of other such things. If you are not sure that you can handle all things on your own, you should probably consider hiring an expert debt consolidator or credit counselor to assist you with the process. Following is a brief rundown on how to go about it.

Talk To Your Creditors

When it comes to using a credit card debt consolidation loan to handle your debt problems, the first thing you have to do is to talk to your creditors about the kind of financial hardship you are going through. Tell them that you are at the verge of filing bankruptcy, but you are still willing to make the repayment provided they make things a little more favorable to you. Let them know that you are considering using the debt consolidation method to pay off your loans. Request them to waive off penalty charges and reduce the amount of interest. When you hire a credit counselor or a debt consolidator, they will also first try to negotiate the debts with your lenders. In fact, the process of negotiation itself may help you find some exciting debt relief solutions. For example, one of your lenders may offer you a low rate credit card allowing you to transfer the debt balances from other cards to this one. This option may also work for you, but you must make an informed decision about it only after reviewing it thoroughly. After all, you will still have a credit card debt, which can be very nasty over a long period of time.

Receive Quotes For Consolidation Loans

A credit card debt consolidation loan is offered in an array of different formats. For example, it can be an unsecured personal loan, a secured home equity loan, or a simple consolidation loan from a reputable debt consolidator. So, if the credit card balance transfer does not prove to be the right solution, the next thing you have to do is to review your options about the different types of consolidation loans. There are certain pros and cons associated with each of these options. For example, a home equity loan can be available at a low rate provided you are a homeowner with some decent equity on your home, but it can be risky also, as you may end up losing your home in foreclosure if you fail to repay the loan in a timely manner due to just any reason. Personal loans on the other hand usually charge a much larger interest rate as compared to home equity loans but the good thing is that it does not require you to put any collateral.

Overall, a credit card debt consolidation loan can no doubt be an effective method to manage and pay off your mounting credit card debts, but you have to be very careful with your decision.

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What are the pros and cons of debt consolidation?