If you really want to see yourself out of debt, then Debt Consolidation is one of the effective ways to do it. There is no set number of people who opt for debt consolidation each year but the people prefer to use this method instead of filing a bankruptcy. More than 1,400,009 people have already filed for some type of bankruptcy this year.
Should you go ahead with the option of credit card consolidation?
Yes, If you owe $4,000 or more in credit card debt, then you should use debt consolidation. In fact, it is an ideal choice for all those people who are facing a huge amount of credit card debt and they are unable to pay it back by making monthly payments.
A simple test
Yes, you can actually test whether you are eligible for credit card debt consolidation or not. First gather all your statements of your credit cards; your next step is to add up the interest on these credit cards, and you need to compare it with the minimum monthly payments needed. If the monthly payments are pretty much the same as your interest charges then you can go ahead with the option of debt consolidation. If you are still making minimum monthly payments, you will spend your lifetime getting out of your credit card debt.
Important Credit Card Consolidation Tips
Now, let us discuss important tips related to consolidating Credit Card Debt that you should know –
- It is not mandatory that all scenarios are created equal
Before you go ahead and think that debt consolidation is the right choice for you, is important to answer some questions –
How long is the introductory low-APR window?
-If you have a longer APR duration, you can actually get more time to make the payment for your debts before the rate goes up.
How much debt you have?
-You can get the actual owed amount, to the creditors, by adding all your credit card statements.
How much you can actually pay towards the credit card on monthly basis?
-The main aim is to pay off your debt as quickly as possible. Therefore, you can tally up how much you can actually allocate towards making monthly payments.
Keeping the above-discussed three elements in mind, find out what is the actual amount you can save on interest during 0% APR duration as compared to the current rates. Now, you should calculate as how much you will actually pay in interest at the standard purchase rate. At last, you have to compare these numbers with what you would be paying in interest at your existing rates.
Get to know about 0% APR application
Make sure you are aware of the fact that the initial APR of 0% might only apply to balance transfers exclusively. As a result, there are chances that new purchases might be charged as standard APR – which can be quite high. Your cardholder agreement will be having the annual percentage rate for the purchases and whether there will be application for intro rate or not. Make sure you create a budget and stick to it. This will really come handy in getting the most out of debt relief program and also help you pay off your balances quickly.
Consolidation can be done with the help of a personal loan
A personal loan can be defined as a loan that can be taken from a credit union, a bank or from a lender under your name. As there is a need to put up collateral for a secured loan, there is no such requirement for a personal loan. If you are interested in consolidating your debt, then you can take out a personal loan for that. All you need is to add up the owed amount and apply for a loan in that amount. If the loan gets approved, you can use the proceeds in order to make the payment for your debts.
Consolidation can also be done with the help of credit card balance transfers
Credit card balance transfers actually offer an alternative for the personal loans in regards to debt consolidation. There is a need to transfer all your debts from multiple credit cards to one single card. The chances are high for you to receive a special introductory balance rate, it can be 0% for 5 months, but you will have to make the payment for the balance transfer fee.
Consolidation into a mortgage loan can also be done
If you own your home and have equity in your home, you can take a second mortgage and you can use the proceeds to make the payment for your debts. This helps in consolidating all your debts in one single mortgage loan. The best part is that it helps in lowering down your interest rates as compared to your credit card debt or a personal loan.
Using debt consolidation agencies to consolidate
The fact cannot be denied that you can easily find numerous agencies or companies that offer debt consolidation services, but having said that it is not that difficult to do it on your own as well. All you require is to apply for a personal loan or a loan that suits you and then use the money that you might get to pay off your debts.
Credit consolidation reduces your monthly payments
If you have a debt with high interest or a debt that needs to paid within a specific time period, consolidating to a lower interest rate can really prove handy in lowering the amount you have to pay on a monthly basis. Also, if you have multiple debts and you have consolidated all of them in one single loan, this too can also help in bringing down the minimum amount you need to pay each month.
Debt consolidation can also bring down your interest rate
Most of the people choose to consolidate higher interest rate into a loan that offers lower interest rate. Not only this helps in bringing down the monthly payment but it also means you will be paying less for the privilege of borrowing money and ultimately your debt will have lower cost to you.
Debt consolidation can help in making changes to your debt structure
If you choose to consolidate your unsecured debt like credit card debt into your mortgage, this will change the structure of your debt from unsecured loan to secured loan. This will mean that you have more chances of having penalties for your nonpayment. While your credit company is not authorized to take your home if you don’t pay but the mortgage company has the authority.
Debt consolidation can also simplify debt repayment
If each month you are sending bills to different creditors, it can become quite arduous to keep a track of all the bills. Owing to this, you may miss out your due dates and incur late charges. Let us say, if you are dealing with only one creditor, it is much easier to keep a track of the bills and it also reduces the chances of late payments.