Credit Card Consolidation
It can happen quickly and fairly easily – out-of-control credit card debt. At first, you’re using your cards to pay essential bills, like utilities and food. Then, you use one card to pay for another. Before you know it, your cards are maxed out and you’re left wondering how to make those monthly minimum payments. It’s a scenario that’s played out in households across America, especially during recent difficult financial times.
When credit card debt becomes unmanageable, it’s time to take control and do something. It’s time to make good on your debts. It’s time to realize that you are not the only one in this position. Across America, borrowers have turned to a variety of credit card debt consolidation options to regain power over their debt and move forward.
Consolidating credit card debt essentially means that you take balances from high-interest cards and transfer them to lower-interest cards or loans. You still have the same balance, but you pay less in interest each month. Better yet, monthly payments tend to be lower, freeing up much-needed cash for other expenses. Over time, however, you will pay more, if you stretch out the repayment period.
For many Americans, credit card debt consolidation is the answer to a growing problem. But for it to be successful, borrowers need to follow simple but important strategies.
For those with average to above-average credit scores, there are a number of consolidation options available. For those who struggle with low credit scores, the options are more limited.
Balance Transfers – One of the more popular do-it-yourself options is to seek out zero-interest credit cards and transfer your balance to them. Many companies offer “teaser” interest rates that last a limited time. Once that time frame is over, usually six months to a year, the interest, also called APR (annual percentage rate), often jumps. It is important to pay off balances before the promotional period ends, if at all possible.
Also, many companies charge a balance-transfer fee that could be as much as 5 percent of the total balance transferred. While utilizing a balance-transfer offer, it is important to make on-time payments and pay off the balance as quickly as possible. Any missed payments can trigger late fees and interest-rate increases. Although balance transfers could be a good idea for those who receive ample credit card offers, it is usually not an option for those who have less-than-perfect credit scores.
Personal Loan – In the past, low-interest personal loans were viewed as a quick and easy means to wiping out credit card debt. Today, however, banks are more reluctant to offer personal loans, especially to those with just average credit scores. It’s important to seek a personal loan with a bank that you already do business with, prove that you have a steady income and stable lifestyle, and provide information about collateral, if needed. Also called signature loans, personal loans are typically only given to those with excellent credit.
Home Equity Loans – Again, once thought of as a quick and easy way to erase credit card debt, these types of loans have become increasingly difficult to get. A home equity loan, also called a second mortgage, utilizes the equity in your home. For example, if you owe $100,000 on your home but it’s worth $150,000, you have $50,000 in home equity and may be able to access that equity in cash. Before the housing market crash, home equity loans were a popular way to consolidate credit card debt. Today, homeowners rarely have enough equity in their homes to make this plan work. And if they do, banks are reluctant to roll the equity into a loan.
Paying Off Credit Cards
No matter what type of consolidation you choose to pay off your credit cards, it’s important to be consistent. Making on-time payments is key. It is also important to not take on more credit card debt as you free up credit on the cards. Now is the time to take a hard look at your spending habits and make the necessary adjustments.
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