Investment Banking | Disadvantages Of Credit Card Debt Consolidation Loans

When you find it impossible to repay your debt, credit card debt consolidation loans can help you get out of it. However, there are several disadvantages of using these services. Let's have a look at some of them.

Lower Loan Amount
In most cases, consolidation loans are unsecured. Hence, they amount these companies lend you would be much lower than a secured loan with collateral. Although you have the privilege of consolidating all your debts into one, and simply make payments towards one account, this can be very expensive if you start missing out payments.

Higher Interest
As mentioned earlier, these loans are unsecured. So the companies providing consolidation loans bear higher risk as they don't have the right to confiscate your property, in case you don't repay your loan. Hence, they try to cover their risk and losses through higher rate of interest. You wouldn't be able to save or invest money after paying such high rate of interest, even if you seek saving tips from Dave Ramsey, Robert Kiyosaki, or any other financial experts. Besides, if your credit score is low, it's unlikely that you will get an unsecured loan.

Increased Phone Calls
No, it wouldn't be creditors' calls because they have been paid-off. It would be other consolidation companies and credit card telemarketers offering you various services. If you approach any credit card debt consolidation company, be prepared to get more letters, mails, and phone calls every day.

If you have decided to seek help from consolidation companies, start with researching about various service providers in the market. Some may offer high rate of interest, some low. Many firms, in order to earn quick bucks, may dupe you by asking for advances and never repaying the creditors. This may be a potential threat to your already-ruined financial condition.

Besides, if you seek help from consolidation companies, your credit score would be adversely affected. Instead, a better idea is to save as much as you can every month and repay your credit card debt. It may seem to be a very difficult task. However, once you start repaying your debt, it becomes a routine.

Spending few dollars to consult a financial expert would be a better alternative. You can ask for debt reduction techniques, money saving tips, and credit score improvement strategies. These experts are well-versed with the current economic situation and have dealt with such situations number of times in past. A financial advisor, therefore, would be the right person to approach.

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