Debt consolidation involves bundling several debts into a single loan with a monthly payment and, hopefully, a lower interest rate. This can help you stay organized and possibly save money, especially when you have a lot of debt and don't seem to be making any progress in paying what you owe. Yes, although it depends on your situation. If you have good credit and a limited amount of debt, you probably don't need to close your existing accounts.
You can use a balance transfer or even a debt consolidation loan without this restriction. Getting a credit card for balance transfer is never restricted. If you get approved for the card, the creditor won't require you to close your other cards. And even with a debt consolidation loan, you may only face an account closing restriction in some cases.
In fact, too many of these factors can damage your credit rating, making it difficult to qualify for things like consolidation loans. If your credit rating is on the low end, it's highly unlikely that you'll qualify for a debt consolidation loan with a lower interest rate than you currently have. Debt consolidation means that your various debts, whether they are credit card bills or other loan payments, are bundled into a single loan or monthly payment. Many companies that advertise consolidation services may actually be debt settlement companies, which often charge upfront fees in exchange for promising to pay off your debts.
Consolidated Credit's director of financial education, April Lewis-Parks, explains why credit card accounts will be closed when you enroll in a debt consolidation program through a non-profit credit counseling service, such as Consolidated Credit. In addition, a debt consolidation loan can diversify your lines of credit and improve your credit rating when you make your payments on time. If you have multiple credit card or loan accounts, consolidation can be a way to simplify or reduce payments. In addition, if your debts (excluding the mortgage) represent less than half of your income, that's another indicator that debt consolidation might be a good option for you.
If a debt management program is right for you, your advisor can also help you enroll as soon as you're ready. When you enroll in a debt consolidation program, also known as a debt management program, creditors freeze your accounts. Or, if you were to apply for a personal loan and can't repay it, you could see your credit score drop and pay fees and penalties. Alternatively, debt settlement involves working with your creditors to reach an agreement regarding your debt, usually with the goal of reducing it.
That way, you can determine if a debt consolidation loan will help you or just get you into more financial trouble. In addition, if debt problems have affected your credit rating, you probably won't be able to get low interest rates on the balance transfer, the debt consolidation loan, or the home equity loan.