Credit card debt consolidation sounds great, pay off high interest bills, but credit card debt consolidation has hidden dangers that you must be aware of before you proceed. Drowning in debt can be frustrating and anxiety filled but make sure the relief you seek is really beneficial to you, let's discuss what to watch out for.
Credit card debt consolidation loans offer the ability to swoop in and pay off your high interest card debt, allowing you to apply more of your payments towards your balance owed and seize control of your finances back from your creditors. It looks like an easy choice on the surface, and in most cases it is beneficial but there are some common financial traps you must avoid if you get a consolidation loan.
Remember that your new loan is just that, a loan, with financing fees and charges for the approval of your new consolidation loan. This in and of itself is normal, but be wary of companies that charge very high financing charges for the privilege of your loan. You may be reducing your rates with the new loan but there is no reason that you should pay more than you have to finance your consolidation.
Many credit card debt consolidation companies will offer to negotiate a settlement of your debt on your behalf with your creditor. What this means is that they will negotiate with your debt holder to have a portion of your debt forgiven in return for an immediate pay off of the remaining amount with the consolidation loan. This is very commonly accepted by credit card companies for delinquent accounts as they would rather write off the debt and get paid a little than risk your bankruptcy and non payment in full.
If you choose to settle your credit card debt, simply be aware of the tax ramifications for doing so, forgiven debt is typically looked up as income come tax time with the IRS. For large settlements you may wish to seek the consultation of an accountant or tax attorney in order to receive a professional consult for your situation.
Also be aware of the affect settlement and consolidation will have on your credit score. You may already have bad credit, and are not in the process of rebuilding yet, then this will not concern you much. Settlement of your debt has a negative impact on your credit score, and can take years to rebuild from.
Lastly, always be sure to work with a reputable and trusted online credit card debt consolidation company. There are many services fighting for your business, some promise more than they can deliver. There are companies that have earned their trust over many years through hard work and service to people just like you, stick with them for your next consolidation loan.