Credit card consolidation: Lower minimum payments and interest rates
Let’s face it, credit card debt is on the rise and the need for a credit card consolidation program couldn't be any higher. With unemployment soaring in 2012 (Source: Fox), many consumers are heavily relying on credit cards in order to get by in everyday life. If you’re like the millions who are struggling with credit card debt, you might be considering credit card consolidation in an attempt to find relief. It’s expected that the average household has an estimated $15,000 in combined credit cards on average. When consumers make the minimum payments on such a high debt amount, it’s only natural to not get anywhere due to high interest rates. When going through a consumer credit counseling service with a debt specialist, they’ll be able to help explain the benefits of credit card debt consolidation and how it can help you repay your debt.
The process of credit consolidation is when a consultant goes over your financial situation and proposes an alternative to paying the minimum required payments by yourself. Usually the debt company will propose an option such as a credit consolidation loan, a debt management program or a debt settlement option. Regardless of what solution you move forward with, most of these options will have excellent benefits compared to paying the minimum payments outside one of these programs. We understand that having such high debt amounts can be extremely frustrating and paying the minimum payments on high interest rates is never a good idea. Before enrolling with one of these credit related programs, it’s always a good idea to get a better understanding of how these programs work and how they can help you become debt free.
A glance at 3 credit consolidation methods
When it comes to credit card debt consolidation, consumers often have a few routes to pursue. Before selecting which method is best for your individual situation, it’s always a good idea to research each reason prior to moving forward with one of these methods. The only decision that is never a good one, is an uneducated decision. Below, we will explain three proven methods when it comes to credit consolidation that way you can choose the best way to pay off your credit card debt.
Credit card debt consolidation programs
The credit card consolidation programs are by far the most popular options for consumers struggling with debt. These programs are often provided by the creditors directly or through non-profit debt management companies. This form of consolidation will consolidate all your monthly credit cards into one lump sum. For consumers wanting to have one monthly payment, this would provide just that. When enrolling into a debt consolidation program, the consumer would have the ability to setup the monthly payment for any date they prefer. So given you wanted to make the payment on the 1st or 15th of each month, this would be possible. When enrolling into a credit card debt consolidation program, naturally the interest rates would be reduced. By enrolling into one of these programs, consumers will see a good part of the minimum payments go towards the principal balance and less towards interest.
These credit consolidation services tend to work wonders for consumers who feel as if the payments they are making are not going towards the actual balances. It’s usually advised to find a debt relief company, as opposed to going with the creditors directly. When a consumer goes with a debt company, they will obtain that one monthly payment. When they go directly to the creditors for this, they have to enroll several times depending on however many credit cards it is they have. When considering these programs, it’s important to stay current with the credit card minimum payments until the proposals are received by the debt company administering the program.
Getting a credit card consolidation loan
Paying off your credit card debt through the use of a debt consolidation loan can be done, but is not typically recommended. It’s important for people to understand that credit card debt is unsecured debt, whereas most loans are secured. Meaning that given an unforeseen situation arises in the future and you couldn’t make the minimum payments on your credit card debt, the creditors wouldn’t be able to take anything from you. When you get a credit card consolidation loan however, the banks like to ask the consumer to put up collateral such as mortgage or some other form of collateral. You should only get a credit card consolidation loan through a bank if you have a guaranteed way to repay the loan in a short period of time. Always make sure that you know the program differences before moving forward. Making minimum payments indefinitely on a secured loan is never a good idea.
When a consumer gets a consolidation loan, they tend to include all monthly payments into one lump sum similar to that of a program which we explained above. The consumer would usually need to put up a form of collateral in order to get these loans. In most cases, the interest rates would be reduced and the consumer would make a minimum payment over a set of years on the new loan. Getting the consolidation loans not only take a great deal of time, but are often frowned upon as they are considered a temporary fix for consumers wanting debt relief.
Do it yourself credit consolidation option
For the consumers who have willpower, you might be able to create your own program. By doing this, you would essentially transfer your balances from the credit cards with the highest interest rates to the ones with the lowest. When you’ve done this, it would be an excellent idea to shred the credit cards that now have the zero balance to avoid further temptation of usage. Remember, credit cards give consumers the false illusion of having money that they never had. Shredding the cards is vital to doing it yourself.
After you’ve transferred your balances to the one account with the lowest interest rate, try and find a way to pay the absolute most when it comes to the payments each month. Although the interest rates may be lower compared to what you were use to, cutting expenses in everyday life to pay more on your credit card debt would be an excellent idea.
3 credit card consolidation tips
Tip 1: Create a savings account
Creating some sort of savings account would be an excellent idea. They say it’s a good idea to have enough money to survive 6 months in advance, so try and create this as your goal. By saving money, having the ability to pay off your credit card debt at anyone given moment would be a good feeling. It would be a good idea to go through your monthly income and compare it with your monthly expenses to find out where you can cut expenditures in order to save. Usually a credit card consolidation company would help create this type of income vs. expense comparison for you.
Tip 2: Watch what you spend money on
While enrolled into a credit card debt consolidation program, try to watch what you spend your money on. Not all expenses are necessary and many of us spend frivolously. Try to always focus on your primary expenses such as your rent or mortgage and try to cut back on things like fast food, or the premium channels on your television. The smaller things will help you save money during this financial crisis.
Tip 3: Shred your credit cards
One of the best tips you can get would be to shred your credit cards. The fact of the matter is, most consumers come within 5% of the allowed credit limit within the first 30 days of possessing the credit card. So given the credit cards start to get paid off, the temptation to use them will exist. By shredding the cards, the ability to use them given you were tempted wouldn’t be there. If it’s really that important to save one or two for emergency purposes, put one or two in the safe – but heed our advise and shred the rest. This would be the best possible tip when enrolled in a credit consolidation program.
4 reasons why credit card debt consolidation is popular
Reason 1: Lower minimum payments
One of the most popular reasons people seek these types of programs, is because of the ability to lower minimum payments. The average consumer tends to pay around 3% of the total balance each month when it comes to the minimum required payment. Through credit consolidation programs, the minimum payment is often reduced to around 2-2.3% depending on the creditors. With the economy the way it is, many consumers are turning to these programs in a form of credit card debt help in the hopes of lowering minimum payments. These programs will reduce minimum payments in most cases helping you reduce your monthly expenses.
Reason 2: Lower interest rates
Don’t you just love how the creditors offered a 0% introductory rate when you first obtained your card, but now you find yourself making minimum payments only to see massive portions of it go towards finance charges and interest? This should be illegal in our eyes, but unfortunately it’s not. When enrolled into a credit card consolidation program, consumers will be able to have the interest rates lowered which will help them pay back the debt much faster.
Reason 3: Debt free in months
With the ability to have the interest rates reduced in these credit card debt consolidation programs, consumers will see more go towards the principal balances. When this happens, paying off the debt in 20 years wont be a reality. The purpose of credit card consolidation services is to help the consumers lower the minimum payments and interest rates which in turn, will help them repay the debt in a matter of months. While enrolled in these programs, consumers can repay the debt and actually get somewhere with the balances owed.
Reason 4: It won’t be factored into your credit score
Coming directly from the words of FICO, credit counseling is not factored into your credit score. Unlike programs like a settlement or loans which may harm your credit rating, the credit consolidation programs that don’t adjust the balances will have no adverse effect on your credit rating. When trying to live a debt free life and pay back what you originally ran up (without massive sums in interest and finance charges), credit card consolidation would do just that. As always, do proper research when researching debt companies.
It's always an excellent idea to do thorough research before enrolling with any consolidation company. Many referral agencies such as the ISPDA and other groups tend to have good reviews and recommendations on where to go. We hope that you give us a minute to show what options you have available and how we can assist you with your situation. Unlike many of our competitors, we have extreme wortk ethics to ensure file acceptance by the service providers.
A short video on how credit consolidation works
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Credit-CardConsolidation.net was not created to establish client-attorney agreements or provide legal advice. We are not a law firm. By using our form, you will be called by one an agent offering a free referral into a debt management or debt settlement service, after we provide our financial analysis and debt budgeting software. Some creditors and collection agencies may refuse to lower the minimum payments and interest rates. Nothing is ever guaranteed, regardless of what company you select. It is always advised that consumers stay current with the minimum payments until the service provider drafts the first payment when enrolling into a debt management program.