Consolidating credit cards good or bad

If you’re already struggling to make your debt payments or your credit cards are maxed out, you may not qualify for a zero percent credit card balance transfer offer.

Bad credit debt consolidation loans are available from some lenders but they are costly.

But you can recover from credit score damage much more easily and quickly than you can recover from crushing debt.

If you are a careful money manager who fell into debt because of unusual circumstances (medical or veterinary bill, loss of employment or some other emergency) and NOT because you spent more on your credit cards than you could afford to pay off each month, then leave the accounts open.

The latter might come with a zero percent introductory interest rate, giving you several months or more to pay down your balance interest-free.

The best debt consolidation solution is one that simplifies your financial life or lowers your cost of debt, or both.

One of the biggest pitfalls of debt consolidation is the risk of running up new debt before the consolidated debt is paid off.

When you finish paying off credit cards with a consolidation loan, don’t be tempted to use the credit cards with their newly free credit limits. You may have heard that doing so could hurt your credit score, and it might.

Debt consolidation makes sense for people who want to make one payment each month instead of several, and for those who can lower the amount of interest they pay by taking the new loan.

You can figure out how long it will take to pay off your debt using a debt payoff calculator like this one from CNN Money.

In reality, credit card debt forgiveness is rare and tricky, and can be very costly. Then you have to convince your creditors that you don’t have the means to repay your debt and your situation isn’t likely to change.

If you manage to work out a debt settlement agreement, the creditor is all but guaranteed to report your forgiven debt to the IRS. The amount of tax you owe on the forgiven debt depends on your adjusted gross income and your tax rate.

At that point, the delinquency stops affecting your credit. Your credit suffers tremendously in the meantime, and since you’re still legally obligated to pay the debt, a debt collector can pursue you until the statute of limitations runs out in the state where you live.

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