Credit card consolidation is an effective way to get out of a bad credit situation. In today’s society, the use of credit is openly accepted. In the past, those in debt were judged negatively. Now, people use credit cards in practically any purchase. In fact, it has become quite a status symbol. Your credit cards give you a certain level of spending power – something that other purchasing tools cannot match. The convenience of being able to buy without cash and the way it extends your ability to spend is quite tempting.
This is how a lot of people end up with so much credit card debt. It is not just the balance that is the problem. A lot of consumers have balances on multiple cards. This is how their debt becomes too much to handle for most consumers.
Fortunately, there are many ways for you to get rid of your credit card debt. One of them is credit card consolidation. While it is a great way to solve your credit problems, you have to ensure that you understand it completely before you finalize your decision to use it.
What does credit card consolidation mean?
So what exactly does credit card consolidation mean? This type of debt combines your multiple credit card accounts into one. Instead of paying off different accounts on various due dates, you only have to monitor one payment.
In most cases, consolidating your debts will change something in your repayment plan. You have to make sure that this change will improve your overall financial position. For instance, if you are having a hard time because your budget is stretched to the limit, you should opt for a lower monthly payment. Of course, this would mean stretching your repayment plan over a longer period and that can make you pay more in terms of interest. If you do not want this to happen, you can opt to pay more each month. This will shorten your payment terms and help you save more in the long run.
To determine the changes that you should pursue, you should look at your financial goals. Make sure your choice among the consolidation options will lead you one step closer to your goal.
What are your credit card consolidation options?
There are many ways you can consolidate credit card debt.
- Balance transfer cards. This involves a new credit card that allows you to transfer the balance of your other cards. You will be asked to pay a fee for this transaction – it is usually 3% of the balance that you will transfer. Most of the time, the card that you will choose is offered with an introductory rate of 0% or a very low-interest rate. This is only for a limited time but it will help you pay down your balance aggressively. Every penny that you pay will go to your principal balance and none to the interest rate. This is a great way to get out of debt fast – as long as you take advantage of the introductory rate.
- Debt consolidation loan. This is another option to consolidate your credit card debt. You will borrow an unsecured loan and once approved, the lender will use the funds to pay off your credit cards. In fact, the money might not even pass through your hands. Make sure that you keep on paying your credit card dues until you receive written confirmation that the consolidation process is completed.
- Personal loan. This is another unsecured loan that you can use to pay off your credit card debts. This is just like a debt consolidation loan but the funds do not have to be exclusively used for consolidation. You can use some of it elsewhere. However, you need to be careful about this. Make sure you do not borrow more than what is necessary and you will really use the funds to pay off your high-interest credit card debts.
- Home equity loan. This is a secured loan that utilizes the equity that you have in your house. Since you will offer collateral for this loan, you will get a low-interest rate. This is a great way for you to use what is already yours to pay for your high-interest credit card debts. You just have to be careful to pay back this loan because you could end up losing your home if you stop paying this debt.
- Debt management. This type of program involves a credit counselor who will help you create a repayment plan that is perfectly suited to your payment capabilities. This plan is called a Debt Management Plan. The credit counselor will present the DMP to the different lenders and creditors that hold your account. Once they accept, you will send your payments through the credit counselor who will then disburse the debt to the respective credit accounts that you have.
Why should you consolidate credit card debt?
There are a couple of good reasons why you should consolidate your credit card debt. Here are three things that you may want to consider.
If you want to deal with the high-interest rates. For most people, the high-interest rate on their credit cards makes it hard to completely get out of debt. Most of their payments go to the interest rate – and only a small percent of the principal balance gets paid. The amount that is carried over to the next month will accrue interest once more. When that happens, it will take you a long time to finish paying off your debt completely. Consolidating credit card debt into a low-interest one is a great way to solve this problem. The lower the interest rate, the more of the principal balance that you can pay off – at least if you continue paying the same amount each month.
If you want to aggressively pay off your debts. Since you are paying more of the principal debt, this is a great way to be aggressive in dealing with your credit situation. The more you pay towards the principal balance, the faster you can get out of debt. It will shorten your payment period and that can help you save money on the interest amount that you will pay on the loan as a whole.
If you want to simplify your payments. Another good reason to consolidate credit card debt is to simplify your payments. Instead of paying multiple debts, you will be left with only one debt each month. This will help you commit to your monthly payments. The chances of getting confused with the multiple payments and dues dates could end up in late payments. It is better to have a simple payment term to help avoid unnecessary problems.
Why should you not consolidate credit card debt?
While there are good reasons to consolidate your credit card debts, there are also a lot of reasons not to do it. Here are the two most important reasons to stay away from this debt solution.
If you want to free your cards to use it again. Some people want to use this debt relief option because it allows them to use their credit cards once more. This is a mistake. When you consolidate your credit card debts, you will have a zero balance on your original cards – but that does not mean the debt is paid off. You only transferred it to another account. This will give you a false sense of complacency because it feels like you already paid off your credit card debt when in truth, you still owe the same amount of money.
If you do not understand why you got into debt in the first place. It is important to understand why you accumulated a lot of debt. Credit card consolidation can make your payments easier but it does nothing to solve the root cause of the problem. You need to pay attention to the cause of your debt situation so you can learn how to avoid landing in the same financial problem again.
What are the steps to consolidate credit card debt?
In case you are sure that you want to consolidate your credit card debts, these are the steps that you need to follow.
Step 1: Identify your credit card debts
Start by knowing your debts. Some of them may be better left alone while there may be others that you need to prioritize. You should also look into the details of the debt like the interest rate and the fees that you will pay. For one, you want to ensure that when you consolidate, you will end up with a low-interest rate. You will never know this if you do not understand your credit card debts.
Step 2: Check your financial position
After looking at your debts, you want to check out how much you can afford to pay. When we say finances, this does not only mean your income. Your expenses should also be studied. You want to ensure that you are not putting your money on purchases that are unnecessary. If you eliminate the unnecessary expenses, you can make your payments bigger. You should also consider your financial goals. Make sure that your choice to consolidate debt will help you reach your goals.
Step 3: Research your options
The third step is to research your options. Earlier, we discussed the various ways you can consolidate credit card debt. You have balance transfer, debt consolidation loan, personal loan, home equity loan, and debt management. You have to understand what these options can do for you. It is also encouraged that you read about the other debt relief options like debt settlement and even bankruptcy. Sometimes, you are too focused on consolidating your debts that you fail to realize that consolidation is not enough to solve your financial troubles.
Step 4: Choose your debt consolidation plan
After researching the options that you have, you can now proceed to the fourth step. Armed with what you know about your debt and financial position, you should be able to determine the right strategy that will help you consolidate your credit card debts. You want to make sure that your choice will not compromise your other financial obligations. Choose carefully because this will affect your financial future. Do not forget to take into consideration your financial goals too. It will probably help if you researched debt consolidation reviews. Reading about actual experiences might help you identify the right option to solve your issues with credit card debt.
Step 5: Commit to your repayment plan
Once you have made your choice, it is time to commit to your repayment plan. Remember that debt consolidation is only the beginning. You still have a long way to go before you can really say that you are free from debt. If you want to make this successful, you have to stick to the new repayment plan of the consolidation program that you have chosen.
How can you make credit card consolidation work?
It is easy to say that you need to commit to the new repayment plan of credit card consolidation. But doing it will require self-control and discipline. It will not be a walk in the park. However, there are techniques that you can use to help you accomplish this feat. Here are a few of them.
- Set up a budget plan. A budget plan is important regardless of your financial situation. This is the best tool that will help you take control of your finances. It is a great tool that will allow you to complete the repayment plan of the credit card consolidation that you have chosen.
- Do not add more debt. If you want to get out of debt soon, you have to keep a tight lid on your credit use. Try not to add more debt – at least until you have paid off what you currently owe.
- Be cautious of your spending. Usually, debt is a result of overspending. If you have identified that this is the cause of your financial troubles, you need to control how you spend your money. While you are paying your debts, it might be a good idea to spend below your means. That should give you a lot of extra money to pay off your debts.
- Increase your income. Another way to quickly get out of your credit card debt is to earn more. You can take up a side gig or you can get a second job. You can also talk to your boss and see if they can give you a raise. Try to find something that you can do to give your income a boost. That will help you increase your extra money so you can allocate more funds to your debt payments.
- Save for an emergency. Finally, you need to start saving for an emergency. Sometimes, people make the right choices with their money. However, their failure to save up for an emergency fund can also work against them. One accident or trip to the emergency room can compromise your finances. Make sure you are ready for the unexpected expenses so you do not have to rely on debt to get you out of a tight spot.
Credit card consolidation is a great way to get out of debt – but only if you really understand how it works. Make sure you do a thorough research of the options so you can make a smart choice. It is important to educate yourself so you will not compromise your financial future.
If it all seems confusing to you, National Debt Relief can help enlighten you. Feel free to check with us if you qualify for debt consolidation so we can give you our professional advice about the matter. We offer a free consultation with no obligations. You can give us a call or chat with a qualified debt expert to discuss your specific credit situation. We can give you advice on the best option to consolidate credit card debt.