Debt Consolidation – Is it a good idea?
Your Credit Minute Show Notes:
- 00:00 YouTubers, what’s going on? This is Nik Tsoukales with Key Credit Repair. Your credit question of the day is, is debt consolidation a good idea? Guys, so this is, uh, something I feel really strongly about, which really coincides with a lot of pieces we’ve been doing lately on credit education, understanding the different phrases and really kind of a glossary of terms of what a lot of this stuff means, and th- this is the problem.
- 00:22 It is a good idea, but there are a lot of programs that a lot of our consumers, a lot of our clients, perceive as debt consolidation. Some people think consumer credit counseling is. Some people think debt relief or debt settlement is.
- 00:40 Now, the- the- the problem is, is when we mix up these different programs and consider them something that they’re not. So, some people will, um, entertain a debt relief program thinking it is a, not realizing that in a debt relief program, technically they have to either fall behind on their debts and then negotiate settlements, or they have to already be behind or possibly in collections then negotiate settlement. So, that’s a different type of program sometimes perceived as.
- 01:07 Other times, people are trying to do consumer credit counseling, not realizing that a consumer credit counseling program allows a remark on their credit report in the comments section that says, “Being managed by consumer credit counseling.” Although that’s credit score neutral, that could hurt your ability to finance something in the future if banks and lenders see those comments on your credit report. Again, could be perceived as . It performs pretty similar, um, to a but it is not one, okay?
- 01:34 Now, what is a debt consolidation? Well, pretty simple. What you’re doing is you’re getting a new loan to replace all your other smaller loans. So, let’s say you have $20,000 in credit cards over 10 different credit card, uh, companies or 10- 10 different accounts, okay? What you’re doing is you’re getting one new big loan, okay, which will then, uh, you’ll take the proceeds of that loan to pay off all the other 10, okay, and then you’ll be sending one payment into that new company or that new l- lender, okay, versus sending 10 payments to each of those other lenders.
- 02:04 Now, that’s a great program because if you’re taking credit card debt, consolidating it into an installment loan, usually the interest rate’s going to be drastically lower, you know. Let’s say an unsecured installment loan, the interest rate’s 7% versus typical credit card rates of 18%, 20%, 25%, pretty common. So, you’re saving a lot of money, a lot of interest, and that way if you can’t afford the monthly payments on the minimum payments on the credit cards, you’re going to take that extra money, send it into the installment loan or the new consolidation loan and get out of debt far, far, far quicker.
- 02:36 Um, so if you qualify for a debt loan, it’s fantastic, but make sure it’s a consolidation loan, um, it’s not a debt relief program, it’s not consumer credit counseling, it’s not debt settlement. Those are great programs in their own regards for their specific purposes, but let’s not mix up the phrase, guys. So, this is Nik Tsoukales with Key Credit Repair. Thanks for checking us out, guys. Have a great day.