Does Debt Consolidation Close Credit Cards?

When financial stress mounts, it can seep into every aspect of life — sleep patterns, eating habits, and personal relationships can all take a hit. A potential solution that frequently comes up is a Debt Consolidation Program (DCP). Yet, one question tends to worry many: Does debt consolidation close credit cards? This article will delve into this subject extensively, providing a comprehensive understanding of what happens to credit cards during a debt consolidation program.

1. The Intersection of Credit Cards and Debt Consolidation Program

When you opt for a Debt Consolidation Program, the first step involves relinquishing your credit cards and other credit sources. These cards are physically destroyed by you, which many people find empowering. Subsequently, the credit card companies cancel the cards for any further use.

1.1 Living Without Credit: A Reality Check

The thought of living without credit cards might seem intimidating at first. However, by the time most people consider a Debt Consolidation Program, they have typically maxed out their credit limit. They are already living in a state of ‘credit-less’ existence. The only distinction now is that they are actively working towards a solution.

2. Overcoming Overlimit Fees with a DCP

Many clients who seek debt consolidation help have exhausted their available credit. Despite this, some credit card companies charge them an overlimit fee every month, which can be around $29. This fee is charged in addition to the monthly interest. With a DCP, once your creditors accept the program, they will cease charging the overlimit fee. This immediate change can enhance your ability to repay the debt.

3. Expedited Debt Repayment and Interest Savings with a DCP

With credit card interest rates in Canada reaching record highs, a DCP can provide significant relief. Most credit card companies will either waive or reduce the interest they charge on unpaid balances under a DCP. As a result, a larger portion of your monthly payment goes towards paying off the principal balance, helping you get out of debt faster while saving on additional interest costs.

3.1 A Comparative Analysis

Assume you have a credit card balance of $973 with an interest rate of 24.99%. With a minimum monthly payment of $37, it would take you roughly 7 years and 7 months to clear your balance. By contrast, with a DCP, the balance could be cleared in approximately 48 months, saving you a significant amount in interest charges.

4. Silence the Debt Collection Calls

Once creditors accept a DCP, the account is removed from the debt collectors’ active queue, leading to a cessation of debt collection calls. However, maintaining regular DCP payments is crucial, or else creditors may resume their calls.

5. Boosting Your Credit Score with a DCP

Maintaining a balance near your credit limit can negatively impact your credit score. Until this balance is reduced, improving your credit rating can be challenging. By paying off the balance through a DCP, you can start rebuilding your credit sooner.

6. The Prepaid and Secured Credit Card Alternative

There might be instances where using a credit card is unavoidable, such as booking a hotel, renting a car, or making online purchases. In such scenarios, alternatives like prepaid or secured credit cards can come handy. These cards are loaded with your own money, eliminating the risk of falling into debt as no borrowed money is involved.

7. Living Without Credit Cards is Doable!

The thought of living without a credit card might seem daunting, but it’s definitely achievable. Many Canadians have successfully done it. In fact, Canadians’ top financial priority in 2018 was reported to be paying down their debt.

8. Guidance from Certified Credit Counsellors

If you need help, a certified credit counsellor is just a call away. They can assist you in creating a budget that covers your monthly expenses as well as occasional ones, such as car repairs and clothing.

9. The Joy of Being Debt-Free

Achieving a debt-free life brings immense joy and satisfaction. The feeling of finally being free from debt at the end of a Debt Consolidation Program can be enormously rewarding.

10. In Conclusion

So, does debt consolidation close credit cards? Yes, it does. But this closure can act as a stepping stone towards a healthier financial future. By opting for a Debt Consolidation Program, you not only work towards clearing your debt but also towards living a life free from credit card dependency.

Debt consolidation is just a call away. It’s time to take control of your financial life and start your journey towards a debt-free future.

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