Risk factors to be considered before consolidating your credit cards
According to most people, credit card consolidation addresses your debt problems in the best method. It is true because credit consolidation lowers the interest rate on your credit card debts and also shrinks the number of debt accounts down to one single large debt. You are thus permitted to deal with just one creditor or lender.
There are various ways in which you can consolidate your credit cards but you need to know all the risks of credit consolidation so that you don't fall further into debt.
The risks that are to be considered before consolidating your credit cards are:
1. End of balance transfer 0% offer. You can consolidate your credit cards through a balance transfer. In a balance transfer you are offered 0% on balance transfer for a certain period of time. Now when the offer period ends, the interest rate increases and if you are unable to pay off the debt within the offer period, the debt amount can increase in leaps and bounds.
2. Losing your home to consolidation lender. You can also consolidate your credit cards by taking out a consolidation loan. Consolidation loan can be of two types, secured or unsecured. In the case of secured loans you are required to keep your asset (in most cases your home) as collateral. Then there is the risk of losing your home if you default on the loan payment.
3. Closed accounts hurting credit. When you do a balance transfer, you may think of closing down your accounts. But the thing is that if you close down all of your accounts at the same time, you will end up hurting your credit score. When you close your accounts, the available credit limit amount lowers. This hurts your credit score. Some credit history is lost too. So, if you are planning to do credit card consolidation through balance transfer, try to remember this fact and avoid closing down all of the accounts at the same time.
4. Falling pray to consolidation scams. You can consolidate your credit cards on your own or else you can also take the help of a consolidation company. Now there are many companies that may offer you consolidation help. But you will have to differentiate between a scam and a reliable company. Otherwise, you can fall prey to scam companies and this will increase your debt problems all the more.
5. Paying more on the interest. If you take long time to pay off your debt after taking out a consolidation loan, you end up paying more on the interest. Consolidation is meant to quicken your debt pay off process but if you make only small payments, not only will you lengthen the debt payoff process but also end up paying more money.
So keep these things in mind when you are going to explore credit card consolidation.