TO DO OR NOT TO DO – CREDIT CARD CONSOLIDATION
Almost 70% of credit card holders do not use their credit cards correctly. Most of them miss their payments (and have to pay additional late charges), carry balances in their credit cards, exceed their credit limits and accrue a lot of interest on their balances. Eventually, the monthly minimum they can afford to pay ends up being just enough to cover the interest fees for the month. The principle does not decrease and with the addition of other usual charges, the credit card balances only keep increasing.
If you are one of the people in the unfortunate situation of being knee deep in credit card debts, you do have to find a solution immediately. You may have already heard about the commonly pursued solutions of bankruptcy and credit card negotiation. However, there is yet another one that you may wish to consider – credit card debt consolidation.
There are two ways you can go about consolidating your credit card debts. One is to do a balance transfer and the other is to get a credit card consolidation loan. Let us look further into both of these ways as well as their pros and cons to help you decide if credit card consolidation is the solution for you.
Balance Transfer
There are many credit cards in the market that offer you a low or zero interest balance transfer. Often the low APR is only valid for an introductory period which may be anywhere between 6 and 18 months. All you need to do is transfer the balances from your high interest credit cards onto a low or zero interest credit card. That way you can immediately stop dissipating your money on high interest and be balance-free on your high interest credit cards. With the savings, you can then afford to make higher monthly payments on your low or zero interest credit card. As a result, your principle gets paid off and you can be debt free.
Pros
- Huge savings mentioned above.
- You may be able to pay off your debts at a much faster rate.
- It is more manageable to keep track of payments on one credit card than a few. There is less chance of forgetting any payment and paying late charges.
- If you keep up with your monthly payments, your credit history may improve.
Cons
- If you are not disciplined and responsible enough to complete paying off the balances during the introductory period, you may jeopardize your chances of being debt-free. In fact, the interest rates increase quite significantly after the introductory period and you may find yourself in greater debt.
- Doing balance transfers repeatedly, affects your credit history adversely.
- There is usually a 3% fee charged on the balance transfer. As such, it will not benefit you to keep doing balance transfers often.
- There are also those who cannot resist using the current-balance-free high interest credit cards. Often they max these cards out again, ending up in greater debt. If you think you may be one of them, you may want to seek counselling services to prevent such a dire situation.
- If your credit history has already been adversely affected, you may not be able to get approval for the low or zero interest credit card. Or you may not get the approval to transfer the entire balance. There might be a stipulation on the limit you can transfer. Both these situations may make balance transfer an unsuitable solution for you.
Credit Card Consolidation Loan
You will have to apply for a credit card consolidation loan. The interest rate of the loan should be lower than that of your credit cards. With less going to pay off interest and more to pay off principle, you can become debt free.
Pros
If you are able to find a low interest consolidation loan, then the pros are similar to that of balance transfers:
- Savings on interest
- One single bill to keep track of rather than a few.
- If you pay your monthly payments regularly, your credit history will improve.
Cons
- If your credit history has already been severely affected, it may not be possible for you to get a consolidation loan with an interest rate lower than your credit card interest rate. The loan then helps you in no way to become debt free.
- If you are paying lower monthly payments, you will be taking a very long time to pay off your debt.
- Credit cards debts are usually unsecured. It is good if you are able to find yourself a consolidation loan that is unsecured as well. However, if your credit history is not favourable, you may have to resort to taking a secured loan (often against your properties such as your home). This is very risky because if you run into any problems with the payment, you may end up losing your home.
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Uma Ilango is a programmer from profession. She writes regulary at Bigarticlepool.com. Thousands of new articles are added every month.
Tags: credit, debt, settlement
Many people think that using a consolidation company is one step away from declaring bankruptcy. This is not necessarily true. Not every credit card company or lender of credit thinks this way; it's subjective. A consolidation company, for some people, is the best way to get out of debt.
I do not believe that using debt consoliation is a good plan. Personally I would not spend even $25 (it's usually 100s) of dollars for this kind of service that could be going towards the actual debt instead. Instead, I would work 3 jobs to pay these off.
The majority of people who do consolidations do not change their behavior, which is the main problem. You could be right back in the same boat.
See the source below for the hows of getting out of debt., This is not easy, and it is not a gimmick. I can testify that it works. Type in the "Baby Steps" in the search field to get started
Closing them will pull your score down a few points. Less Available unused credit.
Kourtnie
Prosperity Financial
Rarely do they help.
The fact is, you owe more money than you feel like you can pay. You have to change the very behavior that is causing it. The consolidation companies figure out what you owe, add one new (additional loan) to the mix (they loan you the money to pay the others off) and then they charge you more interest. They then go to the credit card companies and negotiate on your behalf for a lower rate, or better terms.
You end up just owing MORE people MORE money.
Does that sound like a way out of debt?
Not to anyone else either.
You have to change your life to change this behavior.
Start at the website below–but the real problem is that you are living beyond your means.
You need to increase your income (a second job, more hours, sell handicrafts); decrease expenses (spend less, move into a cheaper house/apartment); or sell assets (sell the car, and walk to work, hold a garage sale.)
Yeah, I know it hurts. But you haven't been in charge of your money–you've let it get in control of you.
Don't spend the rest of your life fighting against creditors. Take control now.
The website will help you to make some tough decisions, and give you some great advice–but it is HARD WORK.
There are no good credit consolidation companies, because none of them change your attitude towards your money. You must.
A loan consolidation and a debt consolidation are the same. A bank loans you enough money to pay off credit cards or loans (like a car loan). They group it all into one single loan through them (hence the word "consolidation"). So they take all your outstanding "debt" and put it in one single loan with a fixed monthly payment.
A credit card consolidation can be one of two things:
First – You take a credit card and "transfer" the balances of all your other credit cards onto it. Then you have only one single credit card bill.
Second – A debt consolidation loan where you get a loan through a bank to pay off credit card debt. Sometimes the bank will want you to cancel the cards too. Not always.
Hope this helps!
STAY AWAY from any "debt consolidation" company that promises to cut your debt in half through debt settlement….This is a risky tactic of deliberately ceasing all payments to creditors and forcing your accounts into default to attempt settlements. You pay a monthly fee to a debt consolidator….this entire fee goes towards building a settlement account and to the consolidator's fees to “settle” your accounts in the future. Your credit card companies will deliberately not be paid so that all the accounts will default/charge-off so that they can attempt settlements at around 50%. If you are current on your accounts, this process will ruin your credit rating for sure. Debt settlement is like a roll off the dice with your finances…You can never predict how your creditors will respond to the deliberate defaulting of your accounts…they might settle at 50%…or they might serve you a summons, take you to court…and if they win, you could be looking at wage garnishment.
None of these “debt consolidation” firms have the power to force your creditors to accept settlements. Your creditors have the right to refuse these terms and take you to court.
If you have already defaulted on your cards or they're past due, then you can negotiate directly with your creditors. See Suze Orman's advise:
http://www.youtube.com/watch?v=jS43XFa3KGU
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Plan B is entering a Debt Management Plan (DMP) with a non-profit credit counselor like CCCS (Consumer Credit Counseling Services). Contact your local Red Cross for a referral. They can negotiate lower payments and interest rates. They do not negotiate settlements.
They will require you to stop using all credit and to cut up your cards. Your credit report will be updated to "enrolled in debt management." This does not damage your credit, but it may make it impossible to obtain new credit while you are enrolled in their program….so don't use this service if you anticipate applying for a new apartment, car loan or mortgage anytime soon, as you would probably be denied while you're enrolled in the CCCS debt management program…. Otherwise, it can be a very good way to deal with your debt.
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Plan C is filing for Chapter 7 bankruptcy. Keep all options open and do what is best for you.
the second part, and most important part… then you have to PAY them to get them to stop calling you