Getting out of debt can be a long road. When financial stress comes upon you, it is easy to make rash decisions. This article is here to help you learn the difference between debt consolidation vs credit card refinancing. When you are informed, making the right decision is much easier.
Even though we mentioned it second, we are going to start with credit card refinancing. This is basically a fancy term for a balance transfer. If you don’t have a lot of debt, meaning $5,000 and under, this can be a good option. Whenever you sign up for a new credit card they will often have a grace period with 0% interest. The term is different with each card but it usually is between 12-18 months.
A card with 0% interest on your balance transfer is awesome. That means every cent of your payment is going towards paying off your balance and not towards the high interest rate credit cards usually carry. Credit card refinancing is a good option only if you can pay off your debt within the free interest period. You also need to make sure you stop spending on that card. The problem many people have when getting a new card is they keep spending on it and are never able to pay down the debt.
This defeats the whole purpose of the balance transfer and the 0% interest rate. Of course this is exactly what the credit card companies want you to do. So, if possible, beat them at their game. Transfer your balance, get the great interest rate and pay your card off before the promotional period ends.
Debt Consolidation Loans
Debt consolidation is different from a balance transfer. With a debt consolidation loan you will not be getting an interest rate of 0%. Depending on your credit and where you get the loan from you will more likely be paying 8-12% interest on it. However, a debt consolidation loan is usually for a longer period of time such as 36 or 48 months. It is a good way to move all of your debt into one monthly payment.
One monthly payment will make paying your bills a lot easier. A debt consolidation loan is the better choice than credit card refinancing if you are not able to pay your balance off within the promotional period. It is also a better choice if you have a higher amount of debt such as $10,000 or more.
There are many debt consolidation companies out there that want your business. However, not all of them are created equal. If you find one you like be sure to check out their rating with the Better Business Bureau. You will often find customer reviews that can help you decide if they are a reputable company. A simple Google search with the company name will bring a lot of information as well. This will help you determine if debt consolidation vs credit card refinancing is right for you.
Debt Consolidation vs Debt Settlement
With debt consolidation you are taking your entire balance from multiple credit cards and personal loans and applying it into one larger loan. You are then going to pay the balance over an extended period of time. What should you do if you are not able to pay your debts? Perhaps you are not able to get a loan big enough to cover all your debts. Maybe you have bad credit.
Any of these situations can take debt consolidation off the table. At this point, you should look into debt settlement. With debt settlement you will call your credit card company and try to negotiate a lump payment for an amount that is less than the total debt. If the credit card company knows you are struggling and feels like they will not get paid they often will settle for 50-60% of your total debt.
The problem with this method is people often do not have a large lump sum to give the credit card company. They are usually living paycheck to paycheck and can barely make ends meet. Using a professional debt settlement company may be a better option. These companies work with the credit card companies on a daily basis. They will know what each credit card company will typically settle debts for and will more than likely be able to get it reduced even further than you would be able to on your own.
Not only will these companies help settle your balances for a lower amount, they usually have programs that can consolidate your reduced debts into one loan. You simply make your payment to them each month and they will make sure your creditors get paid and your balances are reduced.
Of course, these companies are in business to make a profit and their services are not free. They usually charge around 20% of your total reduced debt. Each company is different though so check with their terms and conditions. At Sunbeam Financial we have partnered with Curadebt to help our customers find security through debt relief. We highly recommend you check them out.
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Do Your Homework Before Selecting a Debt Settlement Company
Make sure to ask about the debt consolidation company’s privacy policy before getting involved with them. What will they do to ensure your information is kept confidential? Get a copy of their privacy policy and read over it before making any decisions. If you spot something you do not like, move on to another company.
Be careful with the terms of collateral for any debt consolidation loan you apply for. Many times these types of loans will include a clause about your home, should you default on payments. Obviously, this could put you at serious risk should circumstances make meeting your loan payment difficult. Keep your home out of any loan agreement, and read the fine print.
The debt settlement company will inform your creditors that you are working with them. They will be able to negotiate new and better terms on your behalf. Of course you will still have to approve the new terms and conditions. Nothing can be done and will move forward without your approval. The creditors just want to be paid. If they are aware that you are working hard to repay the money they are owed, they will likely be more willing to help you.
Once you have completed the debt settlement program you should be debt free and have a lot less financial stress. However, it is important you budget your money wisely so you do not end up in the same predicament. The less balance you keep on your credit cards the better. Try to pay your credit card balance in full each month.
If you are struggling with seemingly insurmountable debt, you are not alone. But, you should also realize that there are legitimate debt relief programs like Curadebt that can help a great deal. You now should know the difference between debt consolidation vs credit card refinancing and which is best for you. With any luck, the advice above has shown you what to guard against and what to look for when making these types of financial decisions.
