If you’re battling with paying off credit card debt, then you may want to consider credit card consolidation. Credit card consolidation lets you merge different debts into one single payment. You may consolidate your debt in a few different ways. Taking out a loan is one of the methods to consolidate but, there are advantage and disadvantage for consolidating your credit card read carefully below:
What Is Credit Card Consolidation?
Credit card consolidation is the process of putting your multiple balances together or credit card debt into one single balance. Rather than making multiple payments every month to various creditors, you get to make one singular payment. You can put your balance together by transferring in one card or through a loan.
Each consolidation option has its own advantages and disadvantages. Benefits include simple payments, lower interest rates and this will help you improve your credit score. When you are facing a bad credit situation, credit card consolidation and balance transfer can be a good way to get out of it. In addition to that, you will avoid stress about multiple payments and deadlines with only one payment to make.
Despite having good benefits, you may still want to weigh whether consolidation is the best option for you. The goal of consolidation is to help you get rid of your debts and will pay off your debts faster and save some money along the way. If the final result for you means you end up paying less with a shorter payment period, then you may want to look into it.
Credit Card Consolidation Loan Options
When you do a credit card consolidation loan in Toronto, you put that debt into one loan payment. You may do this with personal loans, home equity loans.
You can apply for debt consolidation with personal loans from a bank, credit union, or online lender. Personal loans may usually have low-interest rates however, lenders may still consider your credit score for your rate. The lender will provide all your options on your loan includes the repayment plan laid out for you, a fixed amount, interest rate, and payment period. With proper debt management and oversight, you can pay off the loan fairly quickly and easily by paying in full and on time avoid having a minimum payment because this will put you at risk of paying more. In addition to that, this can help with saving money, reduce your debt faster, and building credit.
The home equity line of credit provides another loan option for credit card consolidation. Home equity refers to the value of a home, this does not include any preexisting loan balances. The less you owe on your mortgage, the larger value you may have. Home equity loans use your real estate as collateral, which means your home backs the loan. You’re borrowing against the value of your home equity. Also known as a second mortgage.
The interest rates for home equity loans are typically lower than credit cards. Aside from that, rates are also tax-deductible, making it an attractive option. But this comes with a bigger risk of taking out a home equity loan, namely putting your home at risk. If you fail or default to repay the loan, you could lose your home. Not only that, your credit card debt will still remain unpaid.
Which Credit Consolidation Loan Is Best for You?
To start, you will need to have a pretty good credit score to obtain a personal loan. The interest rate will vary, however, having a better credit score will get you a better interest rate. In addition to that, since a personal loan has a fixed payment plan, you have to make sure that you can make each monthly payment.
If in any case, you fail to qualify for a personal loan, you may have the option of getting a home equity loan. A home equity loan gives you lower interest rates compared to your credit cards. Leaving a balance may not cost you quite as much. This may help you save money, but you’ll want to keep in mind it might take longer to pay off a home equity loan.
Advantage and Disadvantages of having a debt consolidation loan
The success of consolidation loans depends on your ability to repay the money. If you make debt payments late or only in part, you could get hit with some serious penalty fees. If this happens, consolidation may be more harmful than beneficial.
If you decide whether to take out a loan or not, you may want to pay attention to the interest rate you’ll get. however, if a loan’s rates are lower than your credit card interest rates, you can end up saving a bit of money. If in any case that the rates are higher, consolidation may be more draining for the wallet. keep in mind, if your credit score isn’t great, you will probably see higher interest rates.
It is important to borrow only what you can handle. Taking on debt to pay off debt produces a vicious cycle and this may not beneficial to you at all. If you cannot pay, you end up putting your assets at risk, lowering your credit score means putting yourself to high penalty fees.
It all depends on you, the consumer, to pay back debts in a responsible manner. With full and timely repayment, you are improving your score slowly and eventually will improve. There are some risks, but with proper oversight, you can achieve a debt-free goal through credit card consolidation.
If you need any advice regarding how to get a debt consolidation, contact us and we are happy to help you out.