When researching various methods on how to consolidate credit card debt, consumers are often left confused. The authors at Consolidate Debt, took this confusion and decided to write an article on how to consolidate credit cards. The most popular reason consumers want to consolidate debt, is to obtain better interest rates than what they currently have. For starters, we'll begin to explain 5 tips and common methods on how you can consolidate your debt to lower your minimum payments and interest rates. Before we get into this, let's first break down the advantages and disadvantages when you consolidate your credit card debt.
Advantages:
When you looking for credit card debt help in an effort to become debt free, consumers often have a great deal of advantages that will often take place. The first advantage to consolidating, is the reduction of minimum payments and interest rates. This has to be the most sought after reason as to why consumers consolidate debt. When enrolling into these types of solutions, consumers will have the interest rates and minimum payments reduced, dramatically. When making minimum payments once enrolled in this program, you'll find a good percentage of the minimums go towards the actual balances. Doing this removes the stress of the consumer having to double up on the minimum payments. Since the interest rates are reduced to realistic numbers, the minimum payment alone will have a good impact on the principal balances.
Another advantage to this type of program, is obviously the consolidation of all unsecured debts into one lump sum. Each month, the consumer will have only one monthly obligation to worry about. The consumer will no longer need to worry about having so many different monthly payments, which is always a good thing. When enrolling into these consolidation offers, consumers will need to only worry about having one monthly payment, as opposed to several. When dealing with ten or more credit cards, this is a huge plus and often saves consumers a great deal of stress. Consumers won't need to worry about sending out so many minimum payments as it will all be centralized through one monthly deduction.
Disadvantages:
When you decide to consolidate your credit cards, you'll need to understand that no solution will exist without it's disadvantages. When enrolling into these types of programs, most of the programs will require the consumer to surrender your credit cards. If you think about it, if a bank is willing to reduce the interest rates to a realistic number, they wouldn't want that consumer to continue to use the cards in exchange for the help that the bank is offering you. So in most cases, the cards will be put on hold.
Another disadvantage when you consolidate credit card debt is that all monthly programs requires some sort of monthly fee. Consumers can look at this as a downside, but for a small fee these programs often help consumers get out of credit card debt in a matter of months. It's always about weighing the advantages and disadvantages to these types of programs. The advantages by far, outweigh the disadvantages when it comes to these consolidation programs.
5 Methods to consolidate credit card debt
Method 1:
The most popular method by far to consolidate credit card bills, is through the debt consolidation programs. The debt consolidation program (also known as credit counseling), is a program that works to lower minimum payments and interest rates. It keeps the consumer current, which is a good thing. This program will prevent a consumer from getting sued seeing that the debt will remain current. If you were to look at FICO's link on "Find out what's not included in your credit score", you can easily see at the bottom that "credit counseling" will not harm the score number. This program works to strictly reduce the minimum payments and interest rates, it does not work to cut the balance in half.
Method 2:
The second most popular method to consolidate credit card debt, is to enroll into a debt settlement program. The debt settlement program became popular in the late 1980s. This type of program usually has a lawyer involved whom will contact a creditor to try and negotiate a balance that will be regarded as payment in full. The lawyer will usually try and get the balance cut down and with the legal fees, expect to pay anywhere from 40% to 60% of what you originally owed on the original balance. It's important to understand, that no settlement company will guarantee a settled figure, the industry standard tends to be in the 50% range. When doing this method, it's important to understand that your credit score will have a negative impact on your credit rating. There is however a flip side to this program and a consumers credit. If the consumer has seriously delinquent debt and enrolls into this type of solution, it may increase it. The outcome of this program on a consumers credit score, just depends on if the debtors current or behind at the time of enrollment.
Method 3:
The third most popular method to pursue when wanting to consolidate credit cards, is to simply transfer the balance owed on one card to another. When doing a balance transfer, many consumers will get various debts and put them on one card with some sort of introductory rate which in most cases, lasts anywhere from 6 to 12 months. When doing a balance transfer, it's important to make it an absolute priority to pay off the card prior to that introductory period ending. If a consumer does not do this, the interest rate will usually increase and to top things off, the interest rate will most likely be compound interest. If a consumer cannot get the debt paid off before this period ends, the consumer will most likely be in trouble and find that the payments he or she makes, will not go towards the actual balances owed. The method of balance transfers, should only be done given a plan is in place to repay the debt transferred.
Method 4:
The fourth method that consumers often look into, is a home equity loan. This type of method is not typically advised, as the consumer would have to put up a home in order to obtain the actual loan that the consumers trying to get. By doing something like this, the consumer would convert unsecured credit cards, into secured debt through a mortgage. This means that given the consumer couldn't make the minimum payments or felt that the minimums were not going towards the principal balance and gave up, the creditors can and in most cases will, take the home to recover from the loan originally issued. This type of loan is never advised, unless a strict plan existed to repay the debt to avoid possible problems like those explained above. The benefit to this method though, is that the consumer will be able to zero out the balances since it is a loan.
Method 5:
The fifth method to consolidate credit cards, is to try and get an unsecured personal loan. These types of loans can be obtained through a local credit union or bank you have a history with. When getting these loans, try to make sure that no collateral is put up in order to obtain the loan. The benefit to this method is that the consumer will be able to zero out the balances and won't need to put up any form of collateral. Getting these types of loans would be extremely hard though, if the consumer had maxed out credit cards. Remember, banks don't want to loan money to consumers who proved themselves to be not responsible with prior agreements with other banks (credit cards).
5 Tips to consolidate credit cards
Tip 1: Before you consolidate credit cards, compare your options. It never makes sense for consumers to just jump into one program. Compare the debt consolidation programs, the debt settlement offers or the 5 methods listed above that we previously discussed. It's always a good idea to compare multiple debt relief options when wanting to consolidate credit card debt.
Tip 2: Always pay attention to possible scams. Unfortunately, some people are in business to scam consumers. Some companies may try and take your money and run. Always do good research prior to committing to a company. We always recommend checking with the Attorney General in your state and the state in which the company operates out of. The BBB however, tends to have a biased opinion so we urge consumers to stay away from researching companies by that method. It's always a good idea to check sites like Yelp or similar related review sites when looking up a companies background.
Tip 3: Research the interest rate your given. Many consumers often sign off on an interest rate with several pages of unique fine print. When something like this happens, the consumer merely sees a number, and not the type of interest. Find out if the interest is computed daily, simple or adjusted. It's always a good idea to find out what type of interest rate you will be on, when it will change and what it will change too. If you don't understand this fine print, take several hours if you need to and properly research it. Education is key when it comes to finances.
Tip 4: Know the differences between programs. When trying to consolidate credit cards, it's important to know which solutions will help you and which ones will further put you into debt. It doesn't take much to spend a few hours researching the different possible solutions and which ones to avoid. We've broken down the top 5 methods in addition to the advantages and disadvantages to those options. It's always a good idea to study the possible options one may have prior to selecting just anyone option.
Tip 5: Further capitalize on the benefits of that program. If for sake of argument you enroll into a debt consolidation program, you'll find that the minimum payment but most importantly, the interest rates will be reduced. When a bank lowers your interest rates, don't pay just the minimum. Learn from your mistakes and try to find a way to double up on the minimums if possible. Re-educating yourself from the bad habits of the past will help when you consolidate credit card debt.
