Credit card debt consolidation can help you out of several different issues by compressing it into one. Basically, you can open a new line of credit, take out a new loan, or enroll in a debt management plan – whichever you decide on, you will use this newly acquired money to pay off your outstanding debt and end up just paying one monthly fee. It simplifies your debts and can help save money in the long run.
Before deciding to do any of this, you should talk to a financial expert. The success of credit card debt consolidation all depends on your situation, and an expert can give you advice on whether this is a good option for you. Before talking to a financial analyst, check out our tips to see if you think it’s the right path for you to take to sort out your debts.
1. Know your Credit Score
Any errors on your credit report can hinder you in your application for debt consolidation. This is the first thing you should do – check your credit score is accurate. You are entitled to a free credit report annually from each of the 3 major credit reporting agencies, TransUnion, Equifax, and Experian. If there are any errors you have to dispute them. Once you find out your credit score, you will have most of the information you need to figure out if you should apply for credit card debt consolidation.
2. Options
There are plenty of options for you to choose from when consolidating your debt. Some are more affordable than others, but which one you can choose depends on your credit standing.
- Consolidation Credit Cards
Depending on whether you have good credit or not, you can find a credit card with low-interest rates. You can then transfer your high-interest balances to the one, low-interest card and save money on your monthly repayments. You can sometimes even qualify for a card that has a 0% rate.
- Personal Loans
Taking out a personal loan with simple interest to pay off your card balances knocks variable interest rates out of your repayment plan. Once you have used the loan to pay off several cards, there is one, monthly repayment. You need to have excellent credit to get the lowest interest rates, and you should ask about your chosen lender’s credit requirements. Avoid large upfront payments and online banks. Sometimes these things are best done in person. You should also verify that your lender is registered in your state to do this kind of business.
- Debt Management
If you feel like your debts are adding up and you just can’t handle them you should get in contact with a credit counseling agency and figure out a debt management plan. Once you have this set up, you pay the agency a monthly fee from which they will pay each of your lenders. Sometimes, lenders will lower your interest rates if they know you are participating in a debt management program. These programs can last from 3 to 5 years.
3. Add it Up
While credit card debt consolidation can help save you money you have to remember that it is not free. Check whether transferring your debts over to one card will lead to more charges – ensure that these will not cancel out the lower interest on the new card. Also, ensure that the time frame you have been offered for low-interest is enough for you to pay back what you owe. Sometimes low-interest rates only last 12 months, so if your debts will take you 2 years to pay back, make sure the last year of your repayments is not screwed up because of higher interest rates.
When it comes to loans, make sure the monthly repayments expected of you are within your budget. If you can’t pay back a personal loan you will end up damaging your credit score. Whichever option you choose, check out the fees you have to pay and make sure they do not outweigh the savings you think you’ll make.
4. Commit
Whether you choose to transfer your credit card balance, take out a loan, or enroll in a debt consolidation program, the most important thing to do is to commit. If you really want to get out of debt you need to stick to the plan you or your lender has created for you. You can keep checking your credit score throughout your payback process – ensure that it is not being affected negatively.
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Posted on May 18, 2023