17 Jul Why Do Some FSPs Not Consolidate Credit Card Debt?

You’re shopping around for the best consolidation loans when something curious catches your eye: “No credit card debt.” Why would an FSP (financial service provider) not consolidate credit card debt?

Actually, banks and debt refinancing agencies don’t offer credit card debt consolidation for numerous reasons. For one thing, they might specialise in a specific debt type, like education, auto loan, store card debt, and so on. On the other hand, they may have stringent risk criteria. A lot of banks recognise the stark reality of consolidation abuse. That is, many consumers take out consolidation loans without addressing the underlying cause of why they’re in debt in the first place.

Let’s explore why some FSPs don’t offer consolidation loans and alternative routes you might consider.

Specialised Services

First and foremost, you should recognise that some lenders especially consolidated medical debt, auto loan debt or student loan debt. These agencies might have different underwriting criteria and processes optimised for these debt types.

You can call to mind underwriting criteria by remembering the 5 Cs:

• Character: credit history and behaviour with credit
• Conditions: conditions and trends in the consolidation landscape
• Capital: your assets (real estate, income, investments) and liabilities (expenses and debts)
• Capacity: income source and ability to repay
• Collateral: what could be sold to cover your default

Some processes might be differently optimised than others, such as education versus medical debt consolidation applications.

Risk

What’s more, credit card debt is an enormous indicator of overspending habits and not being careful with money. They often carry sky-high interest rates, too, leading to overall larger balances for borrowers as opposed to personal loan interest rates. There’s a chance a debtor might not be able to keep up with the consolidation loan’s interest rates, particularly if it’s similar to the rates they were paying before.

Some companies and FSPs may be wary of your predisposition to overspend and therefore nervous about consolidating credit card debt. Consolidating your debt does not address the underlying cause, or root issue, that caused the debt– spending more than you earn. It’s important to understand what makes you overspend and attempt to overcome these issues before debt refinancing, which can sometimes seem like a free pass to accumulate more debt.

In addition, lenders might feel afraid of being abused, that you’ll go into default just as you did with your previous debt. Some creditors might be afraid that you could use up the loan, paying off all your debts at once, just to accrue new debt on those same cards. In this case, a consolidation loan would be more harmful than helpful. To this end, the consumer might be better off undergoing debt review, debt mediation, or filing for bankruptcy.

If you feel you have the discipline to overcome debt and overspending, get in touch with Debt Refinance. Let’s conquer your debt together, one low-interest and monthly repayment at a time.