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 these recent difficult financial times.
When credit card debt is unmanageable, it’s time to take control and do something. It’s time to stop the hounding phone calls from creditors and 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 the variety of credit card 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. For debt consolidation, you’re paying the same balance but less in interest. Better yet, monthly payments tend to be lower, freeing up much-needed cash for other expenses.
For many Americans, credit card consolidation is the answer to a looming problem. But for it to be successful, borrowers need to follow simple but important strategies.
For those with average to above-average credit, there are an unlimited amount of consolidation options available. For those who struggle with credit scores, the options are more restrictive.
- Balance transfers – One of the more popular do-it-yourself options include seeking out zero-interest credit cards and making balance transfers. Many company offer new “teaser” 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 shoots up and the card holder is on the hook for the past interest. It is important to pay off balances before the promotional period ends. 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 entire balance. 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 could be limiting for those who have less-than-perfect credit scores.
- Personal Loan – In the past personal loans were viewed as a quick and easy means to wiping out credit card debt with a low-interest loan, making them easier to pay off. 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 defray 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 potentially have $50,000 in home equity, or accessible cash. Before the United States housing market crash, home equity loans were a popular way to consolidate credit card debt. Today, home owners rarely have enough equity in their homes to cover credit card debt. 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 the key. It is also important to not build up 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.