So how exactly does a credit card consolidation work?
Most consumers are looking for ways to repay the debt they owe, without having to resort to programs such as debt settlement or bankruptcy. The most popular solution by far, would be to consolidate your credit card debt through the use of a debt consolidation service. Many consumers often ask the question thought, how does a credit card consolidation work?
Before we begin, let’s first point out the key benefits to consolidating your credit card debt and what you should expect while enrolled in one of these programs.
- Lower minimum payments
The purpose of debt management offers are to help consumers lower minimum payments. Although the average minimum payment directly with the creditors is 2.5%, consumers should be paying twice or three times the minimum each month (4 or 6% of the total balance). In these debt management programs, consumers can pay anywhere from 1.5% to 2.3% depending on State of residence, creditors and balances owed. It will help you tremendously with lowering your minimum payments.
- Lower interest rates
The credit card consolidation programs do help consumers lower interest rates. Although the average consumer tends to be at around 19%, many are in the high 20s. Need we mind you, that the interest rates are computed daily? The debt management programs will help consumers lower the interest rates making more of the minimum payments go towards the actual balances and not towards finance charges.
- Lower finance charges and “fees”
Similar to that explained in the second benefit above, the debt relief programs will help consumers lower other forms of finance charges and fees. Be it an annual fee, monthly fee or protection plans, these programs are aimed at also helping reduce or possibly remove these fees.
- Become debt free in months not years
Naturally, when a consumer reduces the finance charges and interest rates, consumers will find that a good portion of the minimum payments will now go towards the principal balances and not towards finance charges. Since so much will be going towards the balances, consumers will eventually get out of debt much quicker. Consumers will see a good part of the minimum payments go towards the actual balances, whereas outside of the program most goes towards interest.
- The plus side, it wont harm your credit.
Coming directly from the words of FICO (click here for more information); the credit counseling program will not be factored into your credit score. Remember, there is nothing wrong with trying to find help by reducing interest rates and fees. It’s programs like settlement, elimination or bankruptcy that given these programs a bad name. The programs above will attempt to cut the balance in half or get you out of paying it entirely, consolidation will keep you current and works to only reduce the fees involved.
The quoting process for credit card consolidation
Now as for how the program works, the consumer would first need to get a quote through a debt relief company of some sort. The quoting process should usually only take a few minutes and will require the consumer to provide information such as creditor name and estimated balance. Information such as account numbers or your social security number is not needed for the quote. The consolidation consultations are based merely on creditor name and estimated balance, meaning that if a consumer called in with a 500 credit score and someone had a 800 credit score, the quotes would be similar given they had the same creditors and same balances.
After the consumer provides the necessary information to the specialist, they would show the consumer what they were doing and what credit card consolidation can do in order to help. After the quote was given, the consumer has the option to reject the quote or proceed with enrollment.
Proceeding with enrollment in a credit card consolidation program
The credit card consolidation program (also referred to as debt management or consumer credit consolidation), will require the consumer to provide information such as name, address and eventually the statements for the creditors they owe. It’s at this time as to when they obtain the 16 digit account numbers for the creditors you owe. This removes the possibility of rejection for the debt company that services your accounts. Companies whom don’t require your statements, you should stay away from as this is an excellent work ethic to eliminate the possibility of rejection or error.
When everything’s been setup and you’ve signed off on the documents, the debt management company that is servicing your accounts will then send a notification called a proposal to your creditors. The proposal proposes the new terms and conditions of your enrollment to the creditor. Although they have the ability to reject the proposal, most do not as the creditors themselves are the ones who created this program and the terms the debt management company quoted you. After they reply with the acceptance letter, you are then officially enrolled in the program and can see the new interest rates and minimum payments that was told to you on the day you enrolled.