[Y]ou have a hard time keeping track of the bills you have to pay. With multiple credit cards and more than one loan, it’s a wonder you keep it all straight. You may wonder if a debt consolidation loan is right for you. Before you go this route and try to find a way to consolidate your loans, consider these issues.
Consolidating Credit Card Debt
You may have received an offer to transfer your credit card debt to a new card. The creditor offers zero percent financing on your card for the first six months. This sounds like a good deal, but it’s really not as great as it appears.
You often have to pay transfer fees to move your credit card debt from one card to another. If the fees are large enough, you may lose out on a lot of the savings you were hoping to gain.
Drop in a Credit Score
When you have a new account, it can lower your credit score. Even just an inquiry can cause it to drop a few points. Depending on when the two creditors report to the agencies, it may be possible that your new account will show a balance while the old accounts have not reported a zero balance. Showing more debt can also hurt your credit rating.
The fees for transferring the debt aren’t the only costs you will incur. You may end up paying a higher interest rate after the grace period. Not only would this increase your total cost for the debt, you may be longer paying off the balance if you’re just paying the minimum payment. You will have even more interest added until you have finally wiped out your debt. When you go back and calculate the interest you paid, you’ll discover you ended up paying more for the debt if you took longer to pay it off.
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