Credit Card Debt Consolidation Loan Requirements
For credit card debt consolidation to be effective, the consolidation loan should have a lower interest rate and lower repayment time than you would have had with otherwise. Average out the interest rates on your credit cards and compare that to the interest rate on your consolidation loan.
Ideally, you'd want your monthly debt payments to decrease after consolidating. However, some debt consolidation loans lower your monthly payment by increasing the total repayment period. If you spread your payments out for a longer period of time, yo could end up paying way more interest in the long run.
Good Credit Often Needed
To qualify for many credit card debt consolidation loans, you need to have a good credit score. Unfortunately, if you’re having trouble making your credit card payments, you might not have the good credit you need to qualify for the best interest rate on a debt consolidation loan.
Large Debt Loans Need Collateral
Even with an excellent credit score, you might find that you can’t get a loan large enough for credit card debt consolidation, especially if your debt load is over $20,000. Instead, lenders will ask if you have an asset, like a car or house, that you can use as collateral for the loan.
Using Home Equity to Consolidate Debts
Borrowing from your home equity is another option for credit card debt consolidation. This can work if you have enough equity in your home to pay off your credit card debt. Otherwise, paying off some debts and not others won’t eliminate your problem.
Watch Out For Credit Card Debt Consolidation Scams
Know what you’re signing up for. The debt management industry is full of schemes and scams that take consumers’ money and don’t do anything about their debt. Some companies say they’re giving you credit card debt consolidation, but they really enroll you in a debt management plan (DMP) making monthly payments to your creditors instead of paying them off completely. Other companies put you in a debt settlement program which negotiates a settlement with your creditors after your payments have accumulated to an amount large enough to make a settlement offer.
