Do You Need Debt Consolidation?
Debt Consolidation offers credit counseling clients a different and new approach to tackling their finances. Determining if a debt consolidation plan is right for you can take some time. Looking into the pros and cons now will help you know if consolidating your debt is the best move you can make.
Consolidated Monthly Payment – Debt Consolidation Plans consist of one monthly payment of an individual’s credit card debt and other unsecured debt. Instead of several payments that are sent out monthly the credit counseling agency will receive your monthly payment and break it down to individual payments to all of your creditors.
Reduced Interest Rates – Although some creditors have tightened what they will lower as far as an interest rate reduction for a client who is working with a debt consolidation plan, there are still some credit card companies that will reduce rates, as far as charging no interest while on the debt consolidation plan. However, that is not the norm so it is reasonable to expect a slight decrease in interest rates and if you receive a larger break in rates that is more of a benefit to you.
Reduced Monthly Payments – The days of a creditor reducing the monthly payment by half or more seem to be over, however, several creditors reduce payments required by several percentage points for a customer of theirs that is enrolled into a debt consolidation plan. This can help free up money to apply elsewhere such as a savings account or a retirement account.
Stopped Late & Over Limit Fees – This is probably the most beneficial portion of the debt consolidation plan for a credit counseling client who is behind with their payments to their creditors. The average late or over limit fee is about $29 so if you combine that with an average of six credit card accounts the savings on the fees alone could be up to $174 dollars for that example.
Customer Service – Often overlooked by a person researching a debt consolidation plan that is appropriate for them, customer service means that all of your credit card accounts should be accessible by the credit counseling agency you are working with and any questions you have regarding those accounts should be answered in a timely fashion. A well-rounded customer service staff will go a long way as far as assisting you to get out of debt.
Accounts Closed – All of your credit card accounts are closed to further charging. This can be initially looked at as a con by the consumer because it takes away their ability to charge, however, in the long run, this portion of the debt consolidation plan should be viewed as a pro because it allows the client to rely more on the income they are bringing in and will result in less overall debt that is accumulated while on the debt consolidation program.
Unable to Open New Credit – It may be difficult to open new credit, however, that goes against the grain of the original reasons you had to consolidate: To eliminate your debt. Getting out of debt is the priority, accumulating new debt is not.
Debt consolidation programs offer an array of help with little to consider as negative. The service is designed to assist anyone in need from freeing themselves from the burden of debt. One important factor is that a debt consolidation plan has no negative impact on your credit score. This is according to Fair, Isaac the nation’s credit scoring system, also known as the FICO Score. For a well-crafted explanation of how Debt Consolidation through a Credit Counseling organization works with your credit score see this article by Experian: The Impact of Credit Counseling on Credit Scores
These are a few points to consider in determining if a debt consolidation plan is the best option for you. Contact an agency to determine if their plan can meet your needs.
If you have any questions, would like to discuss your financial challenges, or are just looking for advice, please call us at your convenience. As always, we are here to help and look forward to hearing from you. Visit our financial resource center for free educational materials designed to help individuals get ahead with their finances.
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