Debt consolidation is a common method of dealing with credit card payments that borrowers can be struggling with; however, people with credit card problems should carefully consider their options before deciding on a particular debt consolidation strategy. Sometimes paying off credit cards using other methods is a preferable than trying and consolidate debt that does not need to be changed. Both methods offer their own advantages, depending on the financial situation.
Making the Payments
The first option for debt holders is to simply pay off the balance on the credit card. This is useful because it is fast: most credit cards are attached to online accounts so users can make immediate payments. Debt consolidation strategies can take time, during which balances can skyrocket because of higher interest rates that kick in as debt is left unpaid. Of course, making credit card payments can be a challenge, and card holders may need to carefully plan their budgets and seek counseling services to reserve enough income for this option.
Debt Consolidation
Debt consolidation is very similar to making normal credit card payments, except instead of paying with cash from income or other common sources, debt consolidation uses other sources of debt to pay off the cards. A user can use a lower rate credit card to pay off a higher rate card, for instance, saving on the interest the higher card would have incurred. Other debtors can take out loans such as refinances to raise enough cash to pay off balances they are struggling with and stop using particular cards.
Effects on Credit
In general, unless payments are late and interest is rising higher than debtors can deal with, normal credit card payments are more advantageous for credit. Debt consolidation requires moving the debt from one area to another. The new debt may have better terms, but it is still a new debt, which is not as beneficial for quickly raising credit scores. Also, consolidation may not help debtors that are trying to pay off cards and lower their total monthly payments permanently.
Payment Agencies
Debt payment agencies offer a service for debtors that takes care of credit card payments automatically. The card holder pays the debt payment agency, and the agency in turn pays all the credit card companies as required. This can be a useful compromise for debtors that want to make regular payments but do not want to deal with the payment schedules themselves. These payment companies may make things easier, but they also tend to charge fees for the service.
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