Debt consolidation is the process of moving several unsecured credit card loans under another unsecured or secured loan. Consolidating debt is usually done to achieve a lower interest rate, and to consolidate monthly payments for greater convenience.
Debt consolidation is usually the last refuge of consumers harried by monthly calls from collection agencies. Consumers rely on credit counseling firms who promise that, through credit card debt consolidation, the consumer will face a rosy, debt-free future. This is often a lie, as credit counseling is only the first step in total debt relief.
Consumers must be wary of credit counseling firms which offer debt settlement or debt consolidation. Often these agencies will fail to mention that their services carry heavy monthly fees. Further, these nefidential companies will claim that, after using their services, debtors will once again have the pleasure of pristine credit. This is simply not true. Those consumers who hire the services of a credit counseling firm will often be left with a much lower credit rating than if they to simply pay off their debt.
What is the alternative? Instead of debt settlement or credit card debt consolidation, consumers should consider a process called snowballing. This involves paying the minimum balances on those cards with the largest balances, while using all their extra income to pay off those with the lowest balances. Once they have paid off their lower balance cards, consumers move on up to the one with the next lowest balance.
While it may look appealing on paper, debt consolidation will often leave the consumer worse off. Careless consumers risk running up high balances again on their credit cards once they have moved their debt under the new loan.
In light of all this, the savvy consumer should seriously consider snowballing their debt instead of choosing credit card debt consolidation.