Should you consolidate your credit card debt?

Did you know, on an average, each American has a credit card debt of around $8,000? And this burden is growing bigger in every minute. Life is very frustrating once you are knee deep in debt. So, how to get out of this problem? Some may say that bankruptcy is the best way out of debt while others may say that consolidating debt is a better option. Or should you go for debt settlement? Which one is actually better? Let’s find out. As far as bankruptcy is concerned, it is the worst of all options. Once bankruptcy gets into your credit report, it stays there for around 10 years. This will even effect your ability to get jobs leave alone credit. With credit card consolidation, however, the consequences are not so terrible. You will suffer a hit on your credit record initially. However, once you pay off all the debts, your credit scores will eventually recover. There is no doubt that credit cards are necessary evils. The problem worsens when people start paying for the basic necessities such as food, electricity etc with credit cards. This practice eventually leads to high credit card bills with ridiculously high rate of interest and fines.

Credit card debt consolidation or debt settlement?

Debt consolidation means, you are offered a lower monthly payment based on a lower interest rate. Whereas, a debt negotiation means that the debt settlement firm will negotiate with your creditors for a low payment, thereby reducing your debts by around 40 to 60% or more (yes, it is possible also beware of debt settlement scams). Listed below are 3 popular benefits of credit card debt consolidation.

  1. When you have multiple credit cards with debts accumulating on all of them, they will have varying repayment dates. For some people it is tough to manage. Credit card debt consolidation eases these complexities as all your debts are accumulated to one single debt and one repayment per month.
  2. All your credit cards have different annual fees. These amounts may add up to quite a sum. Credit card debt consolidation helps you to get rid of these annual fees, thereby saving you a good amount of money.
  3. In case, you have had any payment defaults, your credit ratings have already suffered. Credit card debt consolidation will prevent further damage.

If you are unable to manage a good debt consolidation program, debt negotiation may be a good option to get out of credit card debts. The downside of a debt negotiation program is that it may hit your credit score. If you are concerned about your credit rating, consolidating debt may be a better option.

How to go about Credit Card debt consolidation?

Most debt consolidation firms guarantee debt elimination within 5 years. What they do is, they simplify and lower your monthly payments by combining all your balances into a single loan. They negotiate with your creditors on your behalf and design an affordable monthly repayment plan. For this, they charge an application fee.

There are various ways of consolidating credit card debt.

  • You can take a secured loan to pay off your credit card bills. However, if you are unable to pay the equity loan, you may lose the collateral.
  • You can transfer all your balances to the card with lowest APR.
  • You can take a low interest unsecured loan if possible. This will reduce your monthly payments drastically.

In case, acquiring a loan is difficult due to poor credit scores, you can opt for debt settlement.

Once you sign up a credit card debt consolidation program, make sure to follow these tips:

  • Avoid using your credit cards for a while: If you just keep aside your credit cards while you are in a credit card debt consolidation program, you will not be incurring further debts. This will eventually help you eliminate your debts faster. Also, try to reduce the number of credit cards.
  • Set up an emergency fund: Emergencies can happen anytime. We are not always prepared for such emergencies like health problems or natural disasters. Keeping aside around 10% of your budget for an emergency fund will help.
  • Most important of all is to keep a track of your expenditure. So plan a budget first and follow it religiously.

Take help from an expert who will assess your debts, financial status and help you in selecting the right option.

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