A credit consolidation loan is much like a debt consolidation loan. The difference is that a credit consolidation loan is used to consolidate credit card debts specifically. Just like any other long and there can be many variations in terms of duration, interest rate and other terms and conditions of a credit consolidation loan. Whenever you are shopping around for a credit consolidation loan you should try and get the best of terms and conditions by looking in more than one place.
What is the interest rate on the credit consolidation loan?
This is perhaps the foremost question you will ask yourself and the foremost feature of a loan that you’ll be looking at. The interest on the credit consolidation loan will determine how easily you can pay off your credit card Bill and how much of your monthly installments burden is reduced. There is a certain paradox here. In order to qualify for a credit consolidation loan that offers low interest and other favorable terms and conditions you need to have a positive credit file. Unfortunately, the most common cases where people look for a credit consolidation loan is when they are under the burden of unpaid credit card debt and their credit rating has already been damaged because of this.
Criteria for Qualification
This is another paradox. If you have a lot of negative information on your credit report pertaining to late payments on your credit cards then you may not qualify for a credit consolidation loan at all. For this reason a credit consolidation loan is not for people who have seen really damaged their credit history but for people who want to recover from being under a credit card debt and prevent getting late or delinquent on their credit card accounts by making the repayment process more affordable through a credit consolidation loan.
Are you actually getting a new consolidation loan?
Some consumer credit counseling agencies can draw a fine line between debt consolidation and debt management. Debt and credit consolidation happens when a new loan is taken out to pay off all your existing debts instantly leaving you with the new loan to pay off every month. However debt and credit consolidation can work pretty much in a similar manner except that no new loan is taken out. The debt from your existing creditors is consolidated by the credit counseling company and you are required to make one single payment to the credit counseling service who further disburses payment to your creditors.
Just like a debt consolidation loan the length of the credit consolidation loan will determine how much money you end up
Paying to pay off your current debts. While longer to duration of the repayment period the lower will be your monthly payments, you will end up paying more money in terms of interest on longer repayment tenure.
Alternatives to Credit Consolidation Loan
Options to taking out a credit consolidation loan is to look at hardship programs or debt relief through the credit counseling agencies. You can try paying the creditors yourself by taking help you with financial management before deciding to take out a new loan. Taking out a new loan to pay the older ones is not a decision that should be taken quickly and without due thought. This is especially true if you are getting a credit consolidation loan by putting up an asset of your as collateral such as your house, car, borrowing from your retirement fund etc.
Affordability of the Credit Consolidation Loan
Whenever you are working with a creditor to take out a credit consolidation loan make sure that the terms and conditions that you settle for provide for a consolidation loan that is affordable few. The idea behind taking out a consolidation loan is to reduce the monthly burden and allow you to continue to pay your debt. Do not feel pressurized to agree to the terms of interest rate and duration of repayment that the creditor is offering if you feel that you will not be comfortable in making your monthly obligations. Shop around and negotiate with creditors to get the deal that is suitable and comfortable for you.