You’re in a nonstop financial rut, and it’s gotten old. You need to act, and now. You’ve been considering debt consolidation and it’s time to take the leap. Here are some wise credit consolidation tips to help you along the way.
What Is Debt Consolidation?
Ever heard of interest on top of interest? Sounds almost criminal, doesn’t it? Unfortunately, what’s called compounded interest is all too legal, and it happens with your credit card monthly: interest accumulates on what you’ve borrowed as well as the interest you’ve accrued on the total. So, making minimum monthly payments won’t cut it; your debts will continue to mount.
Now comes consolidation, which allows you to take your high-interest debt – usually credit cards – and supplant that with a single remedy that requires you to make only one payment each month. A fixed plan will even give you a date for when your debt will be mercifully erased.
Here are some credit card consolidation options:
A Consolidation Loan
If you have stable income and good credit, you can use this type of loan, which is a personal loan, to pay off your compounding-interest credit cards, leaving you with just one bill of a fixed amount to concern yourself with monthly. You’ll also have processing fees that usually range from 1% to 8% of the loan amount. Check out Bills.com for credit card consolidation options.
The wise move here is to get a loan with an interest rate that’s less than what you’re paying now. As of this writing, the average credit card carries an interest rate of 16.43%. Debt consolidation loan rates usually range from 6% to 36%. What your rate will be depends largely on your credit score. If you need to move fast, there are ways to quickly boost your score. Otherwise, score improvements will take time. Remember, you didn’t get into trouble overnight.
You’ll also want to find an offer that has reasonable time frame for loan repayment – typically between two to five years.
Balance Transfer Card
You may have noticed that credit card issuers occasionally offer a card that has a low or 0% APR for 12 months or more. You can move your high-interest credit card debt to one of these cards and, during that promotional period, save major bucks in interest. One tip is to be mindful when choosing your balance transfer card since the regular rate could surpass the ones on your other cards. You’ll also want to run the numbers to see if the 3% to 5% transfer fee makes a balance transfer worth it to you.
Seek out a card with the lowest introductory interest rate. If you’ve got the credit score to qualify for one of those prized 0% cards, search for one with terms long enough for you to pay off your balance before the regular APR kicks in.
Credit Counseling Agency
These folks will assess your financial situation and advise you, often for free, on what steps to take to improve your finances. Should you qualify for a debt management plan they will also work with your credit card issuers to try to establish a new payment schedule and lower your interest rate. You’ll make monthly payments to the agency, which will distribute the cash to your creditors. Just take care in choosing a reputable agency. You can do that by requesting accreditation and checking for any red-flag reviews.
Whichever way you wish to address your credit card debt, the first step to take – if possible — is to stop using your cards. You’ll also need to come up with a budget to assure that you can pay your debts once and for all.
You now have some wise credit card consolidation tips. Just stick to the plan you choose until that stubborn debt is cleared.
