Cobalt Advisors and Credit 9 have joined Saxton Associates and Hornet Partners in flooding the market with debt consolidation and personal loan offers in the mail. The problem is that the terms and conditions are at the very least confusing, and possibly even suspect. The interest rates are so low that you would have to have near-perfect credit to be approved for one of their offers. Best 2020 Reviews, the personal finance review site, has been following Carina Advisors (also known as Corey Advisors, Pennon Partners, Jayhawk Advisors, Clay Advisors, Colony Associates, and Pine Advisors, etc.).
Keeping track of your debt can be challenging, especially if you owe money on multiple credit cards. Each debt could have its own payment date and interest rate, which can make multiple debts difficult to manage.
Some debtors make the process of managing multiple loans easier by taking out a debt consolidation loan. With this method, debtors will have to pay only one bill each month.
Before you consolidate your credit card debt, it’s important to consider your unique situation and also understand the various scenarios in which debt consolidation could be effective.
Why you should be careful about consolidating your credit card debt
Loan consolidation is rarely considered the best solution for managing debt, but it is viewed as the most attractive option by many debtors. Who wouldn’t want to pay off all their loans, or at least reduce the number of loans they have to pay?
It may be tempting to consolidate your credit card debt by taking on a single low-interest loan from a bank or credit union, but it is important to remember that these institutions are focused on profiting from these loans, rather than relieving debtors of their burden.
Figure out your payment plan
Debtors should check the interest rates on each of their loans. They can then estimate how long it will take them to pay off these loans at their current rate of payment. This length of time estimate should be used as the basis for selecting their consolidation loan.
This can be important when deciding the best way to consolidate your credit card debt.
If a debtor has been offered a 5-year consolidation loan at an interest rate lower than the interest rates of their existing debts, they may still end up paying more in the long-run. This is due to the larger total interest that would be paid over the consolidation loan’s longer length.
Compare your monthly payments
Once you know the interest rate on your consolidation loan, you can estimate how much you will need to pay each month. This amount should be compared to the monthly amount you are currently paying on your existing loans.
If the payment on the consolidation loan is larger than your current debt payments, you should not consolidate your credit card debt. Consider credit card refinancing vs debt consolidation.
Can you consolidate your credit card debt without changing your spending habits?
Many debtors enjoy the satisfaction of being able to pay off their credit card debts with the help of a consolidated loan. However, paying off credit cards that are close to their limits may tempt debtors to start using those cards again, and fall into even deeper debt.
Many people fall into debt due to poor spending habits. If debtors refuse to change their spending habits after consolidating their credit card debts, they may have difficulty making their monthly payments. As a result, they may end up in a worse situation than ever before.
Loan consolidation is not a suitable option for people who are unwilling to change their spending behaviour. Debtors with poor control over their finances should seek alternate debt relief options.
Cases where consolidating your credit card debt is a good idea
Now that we have considered the scenarios in which consolidation should be avoided, let’s look at cases where consolidating your credit card debt could be a good idea.
Use a consolidation loan if you are under heavy debt
Debtors that are burdened by a large amount of credit card debt at high interest rates could benefit from using a consolidation loan. Many consolidation loans are offered at rates close to 5%. If the debtor’s credit card interest rates are much higher than this interest rate, loan consolidation could be useful for relieving their debt.
Consolidate your credit card debt if you have a good source of income
Debtors who believe they can pay back their consolidation loans in the long-run should consider consolidating their debt. This option is recommended if they have a steady income, or other reliable cash flow sources.
Debtors who have been using the same credit accounts for a long period of time may be able to ask their creditors for assistance if they are having trouble paying back their debts. Certain companies also offer debtors “hardship programs” if they are experiencing temporary cash flow problems.
Debtors should make sure their cash flows are consistent and reliable before consolidating their credit card debt, or risk ending up in a situation where their source of income is gone, and they are burdened with a larger debt than before.
Options for people that don’t want to consolidate their credit card debt
It is certainly tempting to combine all your debts into a single one that can be managed with a single monthly payment. However, this route can also be attempted without using the help of another financial institution that is focused on profiting from your situation.
Debtors that wish to tackle their credit card debt themselves should learn to manage their finances using a realistic budget. They should then choose which credit cards to pay off first.
Some debtors prefer to pay off their high interest credit card debts first, while others prefer to pay off the low interest cards first. Debtors can then set up automatic monthly payments that match or exceed the minimum payment required.
Other ways to avoid consolidating your credit card debt
As mentioned earlier, loan consolidation doesn’t actually remove debt. It just reorganizes it in a manner that may be easier to manage.
Debtors will still owe an amount similar to what they owed before, and their source of income or cash flow will still be just as effective (or useless) at paying back the loan.
However, they can use the help of debt repayment and credit counselling services to get lower interest rates on their loans.
Debtors with poor budgeting skills can also ask a debt counselor for help. These counselors can help them create a realistic plan to pay off their debt, and avoid falling behind on payments.
