Credit Card Debt Consolidation FAQ

Q: What is credit card debt consolidation? A: When all of your credit card balances are totaled and paid off by a single new loan. It may have been negotiated by a credit card consolidation expert, or through some other means, like a home equity loan or balance transfers to another credit card company. A consolidation loan helps in budgeting because it requires a single monthly payment lower than the sum of the former individual debt payments. A credit card debt consolidation is usually at a much lower interest rate.

Q: What is homeowner's equity? A: Home equity is the current market value of a home minus the remaining mortgage balance. This amount rises with the increasing value of a home. If the value falls, however, as many home prices have in recent months, so too does the equity in a home. In any case, the equity in a home can be used to borrow a second mortgage that can be used to pay off your debts, typically at a lower interest, fixed-rate loan with a very long term, somewhere between 15 and 30 years.

Q: What is a home equity loan? A: See the above answer. This is the name of the loan or credit line against the equity found in your home. This loan can be used to repair the home, buy a car, or to pay off debts.

Q: Will credit card debt consolidation hurt my credit score? A: Not usually. Most financial institutions consider taking this step a very positive one. They would much rather see a consumer get their financial house in order this way, which still includes see a debt through to the end. They would much prefer this step to seeing someone file for bankruptcy.

Q: What is a FICO score? A: Short for "Fair Isaac & Company,"a FICO score is now the most common way of communicating someone's credit worthiness, though not everyone agrees that it is the fairest. It claims to show the likelihood that a borrower will default on a loan. A FICO score will be between 300 and 850, with 60% of scores landing somewhere between 650 and 799.