Debt Consolidation for Credit Cards
If you are in over your head with credit card debt, you’re not alone. According to the New York Federal Reserve, the average consumer has at least four credit cards and $8398.00 in debt. Consumer debt was approaching $14 Trillion as of the second quarter, 2019. Although the economy has improved since the recession, unemployment rates are low and people continue to struggle with overwhelming credit card debt—so, many turn to debt consolidation. Is this the right option for you? Read on to find out.
Overwhelmed by Credit Card Debt?
Like most people, you probably had good intentions when you opened the credit cards that you have. Unfortunately, things don’t always go as we plan in life; jobs are lost, relationships end and unforeseen circumstances can occur. If you are at the point where you can only afford to make the minimum payments on your cards, or perhaps can’t even do that, it’s time to address the situation before it spirals even further out of control. By considering debt consolidation, you may be able to avoid the serious credit problems that can ensue due to excessive credit card debt.
Why Debt Consolidation?
As the term implies, debt consolidation involves taking payments to multiple creditors and consolidating it into one single payment. One of the best reasons to do so is for simplicity; rather than juggling several credit card payments, which can easily result in missed or late payments, you would have one payment to deal with. Another is savings. Debt consolidation may help reduce your interest rates, avoid late payment fees and other charges, and pay off debt more quickly, which also saves you money.
Step One: Check Your Credit Report
Before weighing the various debt consolidation options, it is important to have a clear understanding of the current state of your credit. Obtain copies of your credit report from all three bureaus—Experian, TransUnion, and Equifax—and remember that you are entitled to one free copy of each per year by federal law. Make a list of all of your outstanding credit card balances, and keep your eyes peeled for errors. If you come across any, dispute them before beginning the debt consolidation process, or they could cause problems for you down the road.
Step Two: Weigh the Options
There are several options out there when it comes to consolidating credit card debt. The most effective and popular include:
Credit Card Debt Consolidation
This option only makes sense if you have strong credit. Unfortunately, many people with major credit card debt have credit issues that preclude them from trying it. However, if your credit is strong, there are credit cards that are specifically designed for debt consolidation. Known as balance transfer credit cards, they typically offer competitive interest rates. For this option to work, you’re going to want the new card to have a lower interest rate than the others. Beware of low introductory APRs because balances must typically be paid in full before the introductory period ends, or you may end up with high-interest charges after all. A trap many consumers fall into!
Again, this option is only viable if you have excellent credit. Unlike credit cards, personal loans charge simple interest rather than variable rates, so they tend to be easier to manage. When seeking information please reach out to major banks and credit unions only. There are companies out there that offer debt consolidation loans online. Be careful and read all of the small print! We have worked with consumers that ended up with interest rates greater than 200% from some of these online loan companies!
Debt counseling and Debt management
You don’t need good credit to qualify for debt counseling, or debt management, which involves establishing a plan with a debt management service provider and making one monthly payment to them. The agency then disperses payments to your creditors. Many times, creditors drastically lower interest rates for people who are actively participating in debt management plans, so you stand to save money this way too!
Take the First Step Today for Debt Counseling
Although debt consolidation can be an effective way to get a handle on out-of-control credit card debt, it’s not a cure-all. Some of the methods that are mentioned above can backfire if not handled properly. For instance, if you fail to pay off your balance on a low-interest-rate consolidation credit card before the introductory period expires, interest rates will rise and you will lose money. If you max out A credit card, your credit may be negatively impacted because it will affect your credit utilization percentage. Debt relief counseling is often the best and most effective option. Reach out to UmbrellaDEBT today to weigh your options and to learn more.