Have you ever felt the urge to consolidate credit card debt but you never really pushed through with it? If you think about it, consolidating debt makes a lot of sense. If you have enough money to pay off your debts and you simply want to make your monthly payments simpler, you should be okay with debt consolidation.
This type of debt relief option is also perfect for credit card debt. Since it is notorious for the high-interest rate, you should try to lower that rate to help you save money. Consolidating it will do the trick. You can use a balance transfer card that will give you a 0% interest for a couple of months to over a year. Or you can opt to get a debt consolidation loan with a lower interest rate. It is also possible for you to consolidate by using a home equity loan.
All of these options will end up giving you a lower interest rate. Even if you stretch your repayment plan and make it longer, it will not cost you too much money.
Why you can’t consolidate credit card debt
While it may seem like a good idea to consolidate credit card debt, not everyone is open to it. According to a survey, almost half of their respondents with $6,000 worth of credit card debt have never tried to consolidate their credit card debts.
The same survey provided the reasons why they felt this way.
- 25% said they were afraid it will hurt their credit score. After all, most of the consolidation options involve opening a new credit account (e.g. debt consolidation loan, home equity loan, balance transfer card).
- 24% are worried about getting scammed. Identity theft and fraud cases have risen over the years. If you are in debt, you are already sensitive when it comes to your financial situation. It is not surprising if you feel cautious about debt relief programs. You do not want to make things worse.
- 23% do not have a good enough credit score. This is actually surprising because the average credit score of Americans is quite high. But then again, most of the people who answered this might have less than stellar credit scores and that makes them timid when it comes to consolidating loans.
- 22% felt like it was too much work. It is not clear why these respondents feel like it is too much work to consolidate credit card debt. It is possible that they do not understand the process.
- 19% don’t want to extend the time in debt. This is a valid reason – especially since some debt consolidation option will stretch your payments so you end up with a lower monthly payment.
- 18% do not think it will save money. Again, this is probably caused by their inability to understand what credit card consolidation can do.
- 11% do not know what credit card debt consolidation is.
How to deal with your consolidation fears
Now that we know why people are hesitating to consolidate credit card debt, it is easier for us to find out how to overcome these fears. Let us focus on the top three reasons why they do not want to consolidate their multiple credit card balances.
Make sure you have a repayment plan in place
1 out of 4 respondents said that they do not want to consolidate their credit card debts because they feel like it will hurt their credit. There is some truth to this. However, most people do not realize that this is only temporary. Once the credit cards reflect a 0 balance, that will improve the credit utilization rate and in effect, give the credit score a boost.
Not only that, your payment behavior after you consolidate credit card debt will increase your score gradually. You just have to make sure that you have a repayment plan in place. You have to ensure that you can follow this plan strictly. If you miss out on a payment, that can make your score go down.
Conduct proper due diligence or DIY
The second issue that keeps consumers from consolidating credit card debt is their fear of being scammed. Admittedly, there are debt consolidation options that will require the help of a professional – specifically a credit counselor. You want to make sure that you are putting your trust in the right organization. To find the right company to help, conduct due diligence. Do your research and find customer reviews. This will help you determine if the company is trustworthy or not.
Of course, you also have the option to do a DIY debt consolidation. This means you will consolidate credit card debt without the assistance of a professional. There are so many ways you can do this. You can borrow a debt consolidation loan. Or you can use a balance transfer card. As long as you understand the consolidation process and you have the discipline to stick to your repayment plan, you should be fine.
Opt for debt management
The third fear on the list is feeling like their credit score is not good enough. According to reports, a bad credit score can cost you up to $45,283 more compared to those with a higher score. This is based on a lifetime of borrowing.
If you have a bad credit score, it does make sense to keep from borrowing a loan to consolidate credit card debt. However, you have an option that will not require a good score. That is debt management. This consolidation strategy will not cost you a lot even if you approach them with a ruined credit score. You just have to make sure that you can commit to the debt management plan that they will create for you.
As you can see, being fearful of debt consolidation is normal – but it is actually not as bad as it seems. You just have to get to know it better so you can avoid the pitfalls that you think will compromise your debt relief success.
