When you decide to consolidate your unsecured credit card debt, you'll need to find a loan that grants you the lowest possible percentage rate. Once approved, you will make payments to the loan rather than your cards. However, the most important thing to expect is the temptation to use your credit cards again. If you want credit card consolidation to work in your favor, you must resist the urge to keep spending.
Application Process
Before applying for a debt consolidation loan, you should shop around for the best rates. Often, credit unions have better rates than banks, so you should look into a variety of options. Consolidation companies can offer you a general range, based on your credit score prior to actually applying for the consolidation loan. Once you find a loan that you want to apply for, you'll have to submit an application and grant access to your credit report.
Credit Score
Since a consolidation loan is a new line of credit, the lender will make an inquiry into your credit. Too many inquiries for new credit is a negative mark against your credit score. However, if you pay off your consolidation loan, the positive impact on your score will outweigh the inquiry.
Acceptance
Once you are offered a loan, it's vital that you calculate your current credit card payments and compare them with your prospective loan payment to make sure you're actually saving money by using the loan. When you accept a loan, it will wipe out your credit card debt, bringing your balances to zero. Then, instead of making multiple monthly payments, you'll make one payment to your loan each month.
Considerations
Many people find it difficult to avoid using their credit cards once the balances are wiped out, which leads to further debt. Then, instead of having one payment to the loan each month, you are back to making multiple credit card payments plus the loan payment. You must be completely committed to paying off your debt if you decide to take on a consolidation loan. You may also have difficulty in gaining new credit after taking on a consolidation loan, since creditors are weary of those who appear to have difficulty making payments.
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