A common concern when consolidating debt is having all credit card accounts closed as part of the consolidation process. The issue here is that debt consolidation is not a panacea for debt woes, so closing all credit card accounts has a couple of significant implications. For instance, the person who has recently consolidated is often not in a position, at least in terms of their credit score, to get a new credit card immediately, and even if they are, that credit card account is often only available at a greater rate than the credit card accounts that they currently possess.
The other substantial issue is that debt consolidation is the beginning of a recovery process. After all, the goal for most people who opt for consolidation is to achieve a clean credit history and a credit score that is as perfect as possible. They want that freedom. Used wisely, the credit card is a valuable tool for establishing and rebuilding positive credit. If a person lacks a credit card, than the process to achieve their credit goal becomes much more difficult. In addition, getting that “first” credit card can be extremely difficult, so it’s really like starting all over again.
There is another issue as well, and those who lack experience with debt consolidation often overlook it: Available credit limit is a vital aspect of your credit rating. If you close too many accounts or close accounts unnecessarily, it makes any remaining debt seem far worse. Therefore, the goal is to achieve balance. When consolidating, a person, preferably with the help of an expert, needs to determine the appropriate amount of credit for their particular situation. They can use the credit card accounts that remain open to reach that goal and the goals outlined above.
For these three reasons, most seasoned debt consolidation specialists do not recommend closing all credit card accounts, and when designing a personal debt management plan, the best financial advisors will go that extra mile to ensure that at least one and perhaps multiple credit card accounts remains open. In fact, when shopping around for a service, consumers should ask this during the interview, and this should be a primary factor along with aspects such as rates, certifications, qualifications, complaints with the Better Business Bureau and so forth.
If a debt specialist tells you that it’s in your best interest to close all credit card accounts , this should raise a red flag. It doesn’t necessarily mean they are wrong. Each individual situation is different, and some debt scenarios do require or call for all credit card accounts to close. But it could also be a matter of an inferior service taking the path of least resistance. This is a common issue, especially among cut-rate services turning a profit by turning over a large number of customers. Just as you would with bad medical news, get a second and even a third opinion.
Related Articles:
