More and more people are finding themselves overwhelmed by their credit card payments are considering credit card debt consolidation loans. This is a term that is often misunderstood to be the same thing as credit card debt consolidation. It is important to understand where the confusion lies as you find your way out of credit card debt. Let's take a look at both terms.
Simply stated, debt consolidation is when a consumer combines all their debts so that there is one single monthly payment which will then be distributed to satisfy the various creditors. The whole purpose of it is to make the payments more affordable by lowering the interest rates. Oftentimes penalties and fees are also forgiven by the creditor.
Credit card debt consolidation loans are really not loans at all. The program has been created to help people pay off their debts without having to default. If a consumer wants to pay off their credit card debt with a loan, they will have to do so by borrowing money against the equity of their home or by taking out another type of personal loan. They will then pay off the credit card debt completely and pay the loan off instead. Loans are not very easy to come by these days, so unless you have pristine credit this is likely not an option.
If the consumer is in fact looking for a loan to completely pay off their credit card debt then it is actually not a debt consolidation loan at all. What the consumer is doing is not consolidating their debt but rather using the loan to pay it off. The distinction between the two is where the confusion usually begins for some people.
Also confusing to some are the terms debt consolidation companies and credit counseling services that are both being used to describe the same thing. These companies work on behalf of the consumer to negotiate better terms with credit card companies. They are not offering credit card debt consolidation loans they are helping people obtain lower interest rates and payment terms that make it easier for them to pay down their debt.
The financial institutions are used to working with debt consolidation services to work out payment arrangements for credit card holders. These services are quite successful in getting the credit card companies to lower interest rates because the financial institutions understand that if a customer defaults on a debt they will not receive any of the money. It is to their advantage to work out a plan that the consumer can handle.
This process requires the consumer to close all of their credit card accounts. It then takes approximately 4 to 5 years before the credit card debt is completely paid off. Thought these are not credit card debt consolidation loans, they are very helpful to many consumers as a means of getting out of debt and back on their feet financially.
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