Do you have several credit card debts? Are you tired of the high-interest rates and multiple payments per month? If so, credit card debt consolidation could be the ticket to lowering your monthly payments and rolling them all into one.
To lessen your financial burden, and pay the debt off sooner, several consumers consolidate all of their debt onto one single credit card or a personal loan. But before you decide to do so, take a look at a few choices that are available to you.
What are My Options?
Several available choices are to utilize a bank for a personal loan, or a line of credit, or apply for the bank’s credit card. So, what are the differences between these three choices? For one thing, the interest rate will be different as well as the APR introductory offer. There may be an initial offer for transferred balances to have a 0% APR for six months to a year. All of these options can put your debt all into one place giving you one monthly payment. Before choosing one of these options, ask yourself these simple questions.
- How much debt do I have altogether?
- How high of payment can I afford monthly?
- How long is the introductory APR offer?
After having these answers, take a few minutes to figure out how much you will be saving on each option. Then, choose the best consolidate credit card debt that suits your needs.
Credit Card Debt Consolidation Tips and Tricks
Balance transfers will have an impact on your credit. Remember that 30% of the FICO Credit Score is established by “credit utilization,” which is the full amount of credit that you are using. In fact, it’s best to keep your credit card balances as low as possible. On the other hand, when you consolidate credit card debt, the payment will go directly to the balance when you have an introductory of 0% APR. With this in mind, your debt will get paid sooner lowering the debt owed and raising your credit score. Not all credit card debt consolidation is free. Some credit cards may require a one-time transfer fee. Double check that this cost doesn’t outweigh the initial benefits. Unfortunately, promotional interest rates do end, so be sure to pay your debt back within the time frame allowed to avoid interest payments altogether. Another key tip, often overlooked, is that closing your old accounts after you consolidate is a bad idea. In fact, your Fico score could go down 15% decreasing you’re the age of your credit history. Instead, either cut up those old cards or place them somewhere, so they are not tempted to be used. It is important to realize, that you should commit yourself to a plan to avoid racking up more debt. Meaning, rolling all of your debt together is only half the battle. For a credit card debt consolidation to get you completely out of debt, you must keep yourself to a strict budget plan. No matter what that plan maybe! It could mean paying off the debt before the APR introductory offer is finished or have it paid back within three to five years. Whichever it may be you must stick to it to reach your ultimate goal. For the most part, you should:
- Choose the best debt consolidation that fits into your budget
- Keep up with your payments
- Keep an eye on your credit score
- Don’t add any unnecessary debt
By following these simple steps and tips outlined in this article, you can eliminate your credit card debt and increase your credit score. In the long run, you also will have learned how to stay within your financial budget and become debt free. National credit card organizations state that spending cards carry a higher interest rate than mortgages. These cards have a greater negative effect on your credit score and when you become weighed down in its debt, it is not good for your credit history. How To Safely Consolidate Debt? There are different ways to consolidate debt which goes a long way in helping your financial standing and credit score. Two methods include a balance transfer or a personal/installment loan.
Balance Transfer Card Benefits
Credit card companies consistently offer cards with a 0% or very low-interest rate balance transfer offer. This means that they will transfer any other balances from cards you own to their 0% card giving consumers a one-time payment plan. Companies advertise that consumers have a chance to pay off much of the principal and not just the monthly accrued interest. If you apply for this card, credit report companies call this a ‘hard’ credit which does affect your credit score and could lower it. You must read the small print on these offers because the promotions have an expiration time associated with it and if you have not met this by the end of the promotion you will return to a regular high-interest rate. However, the key component in applying for these cards to consolidate debt depends on an effort required by you. In other words, you must not use any of your old cards to go on a shopping spree because you are back where you started with another higher APR rated card.
The benefits of a balance transfer are a good option if you follow the steps it takes to pay off the balance:
- You must be able to pay off your transfer balance within the promotional period which is often one year or 18 months
- Do not make any additional purchases on the 0% transfer card
- Make the monthly payments on time
Take Out A Loan
In learning, how to reduce credit cards and their balances that seems to take forever to pay off, consumers can apply for a personal loan. Personal loans are now easier to apply for and have become a user-friendly option to reduce credit cards and the debt they can carry.
The benefits of applying for a personal or installment loans include the following:
- You can apply for the amount you need
- Choose a time period in which to pay it off
- Low-interest rate is calculated
- You make low monthly payments until it is paid off anywhere from 3 years and up
- Any purchases that you make cannot be charged to you at higher interest rates
If your personal loan is in good standing meaning you don’t miss any payment periods, this can help to increase your credit. If you have insufficient credit as part of your credit report, a personal loan is still a consolidating option, especially if you meet certain requirements or if you can identify someone to co-sign for you. A co-signer results in lowering your rates opens up larger loan options and is a great interest saver option.
Steps to Easy And Effective Debt Consolidation
There are also other consolidation steps that people consider in learning how to lower the APR on their credit cards, which include home equity loans and paying down the higher interest rate debts or the smaller debts sequentially. A home equity loan was once a favorable method to pay off credit card debts. Yes, home loans carry low-interest rates, but if you are not faithful in keeping up payments, your home can be at risk. Benefits of lowering card debts involve a slower but far less risky strategy. People have chosen to pay down the higher-interest rate debt first to minimize interest charges, then to concentrate on paying off the smaller indebted credit cards. This method is also a good motivation to keep your spending habits under control and your credit history is vastly improved.