Debt Consolidation Companies: Legit Helpers or More Pain Than Gain?
Types of debt consolidation
- Types of debt consolidation
- The costs of debt consolidation
- Best debt consolidation companies
- Pros and cons of debt consolidation options
- The bottom line
Debt consolidation program
Debt consolidation loan
The costs of debt consolidation
Best debt consolidation companies
The National Foundation for Credit Counseling
Pros and cons of debt consolidation options
Debt consolidation program pros and cons
- Your loans will stay right where they are now. You won’t need to deal with getting a new loan or transferring debts.
- Credit score is not impacted. In most cases, your credit score will not be affected by enrolling in a debt consolidation program.
- You may be able to reduce your interest rate and your monthly payments. In addition to helping you pay off your debts, you’ll receive counseling that may be able to help you manage your finances better in the future.
- Only unsecured debts are eligible for debt consolidation programs. If your loan is secured by collateral (such as a home or auto loan) it is most likely not eligible for the program. In some cases, you may have to agree not to take out new loans while you’re paying off your old debts.
- No credit lines. You may also be asked to close some of your credit cards if you participate in a debt consolidation program.
Debt consolidation loan pros and cons
- Allows you to pay off your pre-existing debts with a lump sum. If you’ve fallen behind on your debt payments, using a debt consolidation loan to pay those debts off can help you avoid paying repeated penalties and late fees.
- Possible 0 interest. Some debt consolidation loan options — such as balance transfers — may offer no-interest introductory offers.
- Debt consolidation loans typically come with higher interest rates. So even though you’re paying off all of your other loans, you may end up paying more in the long run due to the higher interest rate. If you use a home equity loan, you have to be very mindful of staying on top of your loan payments, or else you might jeopardize your homeownership.
- Temptation exists. The lender of your debt consolidation loan isn’t going to require that you close your credit cards or accounts. This means that the temptation to use those cards will still be there, and it can be very easy to end up deep in debt once again.
- No counseling. There is usually no financial counseling aspect of debt consolidation loans. Even though you’re solving the problem in the short term, you won’t be getting any support to help you address the larger issue that may be at hand.
- Since you’re taking out a new loan, this can affect your credit score.
The bottom line
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