Debt consolidation has become one of the most popular ways to get big debt under control. There is no statistic for the number of people who opt for debt consolidation each year but it is thought that more people choose this than those who file for bankruptcy. And more than 1,367,006 have filed for some form of bankruptcy just this year.
Should you consolidate your credit card debt
If you owe $5,000 or less in credit card debt, you’re probably not a good candidate for debt consolidation. It’s really for people who are facing a staggering amount of credit card debt and can’t see any way to pay it back by just making their monthly payments.
A simple test
There is actually a simple test you can do to determine whether or not you need debt consolidation. Take out all of your credit card statements, add up the interest you’re paying on them each month and compare this with the minimum monthly payments required. If you find that your minimum monthly payments are roughly the same as your interest charges, you’re a good candidate for debt consolidation. This is because if all you can do is make just your minimum monthly payments you will literally never get out of debt.
The “wrong” ways to consolidate your debts
Three of the most popular ways to consolidate debt are basically the “wrong” ways, which I will explain in a bit. The three ways are a debt consolidation loan, a debt management plan and a credit card balance transfer.
Debt consolidation loan
A debt consolidation loan will consolidate your debts and should give you a lower interest rate and lower monthly payments. But you need to be able to borrow enough to pay off all of your debts and, depending on how much you owe, this just might not be possible. For example, if you owe $10,000 or more, you would probably have to get what’s called a secured loan. And to do this you would have to have an asset such as equity in your home valued at $10,000 or more. In addition, it will most likely take you 7 to 10 years to pay off that loan.
Debt management plan
An alternative to getting a debt consolidation loan is to go to a consumer credit counseling agency and let it help you develop a debt management plan. This is a way to consolidate your credit card debts in that once all of your creditors accept your plan, you won’t be required to pay them any longer. Instead, you will pay the counseling agency once a month and it will then pay your creditors.
A credit card balance transfer is where you transfer the balances on all of your high-interest credit cards to one with a lower interest rate. Today, there are available 0% interest balance transfer cards. These are cards that carry a 0% interest rate for anywhere from 6 to 18 months. If you transfer all of your balances to one of these cards, you will have consolidated your credit card debts and you’ll have a period of time where all your payments will go against your balance – to help you get out of debt faster.
Why these are all the “wrong” way to consolidate credit card debt
What makes all of these options the wrong way to consolidate credit card debts is because none of them can reduce your debt. They are just ways to move your debt from one set of creditors to another. And no matter which of these you choose, it will take you anywhere from 5 to 10 years to pay off your debt.
The right way
The right way to consolidate credit card debts is to put our debt counselors to work. They will negotiate with your creditors to get your balances and interest rates reduced. They will help you develop a payment plan that will likely save you thousands of dollars and help you become debt free in 24 to 48 months. This is called debt settlement and while it will have a negative effect on your credit score, it won’t be as serious as if you have filed for bankruptcy.
Choose the “right” way to consolidate credit card debt. Call our toll-free number today for complete details.