Loan Requirements for Credit Card Consolidation
A few basic concepts and aspects need to be clear before you attempt consolidation for credit card debt. For a positive outcome, the new loan (the consolidation) should have a lower interest rate and a shorter-life than your existing debt. To shed light on this aspect you need to:
– check all the interest rates of your credit cards and make their average;
– compare the obtained interest rate average with the interest rate of the consolidation loan.
The most visible achievement with consolidation lies in a decrease of the monthly payment. Beware of lower monthly payments enabled by prolonging the actual extent of the loan. A consolidation loan should be analyzed not only for the short-term objective (i.e. lower monthly payment) but for its long-term impact as well. Otherwise, you could end up paying a lot more interest with an extended consolidation loan, even if the monthly payment is lower.
The Good Credit Requirement – a must for qualification!
A large number of credit card debt consolidation loans require a good credit score as an essential qualification criterion. Yet, if you have trouble paying credit card debt, your credit score may not be that good. And you won’t be able to get the much needed consolidation loan.
The use of Collateral for Large Debt Loans
It sometimes happens that credit card consolidation is not possible even if you have an excellent credit score. This usually occurs because of very large debt (higher than $20,000). In order to get a loan, under such circumstances, the lender may ask you to use an asset (car or house) as a collateral.
Consolidating debt using Home Equity
Credit card consolidation is also possible by borrowing from your home equity. The solution may work if you have enough equity in your property to cover the credit card debt. If this is not the case, a home equity loan will not be of help.
Lots of Scams – No Magic Solutions!
In the vastness of the ocean, sharks swim along with other fish. The metaphor applies to the debt management industry which is the ocean, while scammers are the sharks. Don’t believe in anybody’s promises if they are too good to be true: e.g. pay $3,000 now and they get you out of debt. There are companies who advertise credit card consolidation, you pay for it, and they just enroll you with a debt management plan. There are also companies that enlist you in a debt settlement program with your creditors.
Just be sure what you sign up for in order to stay on the safe side of the road!