When you have a large amount of debt with a several different creditors, it can become overwhelming each month when you try to plan your budget. It can become impossible to pay all of them, especially if you have had a job loss or other financial setback.
One option is credit card consolidation.
What is Credit Card Consolidation?
As the term implies, it ‘s combining multiple credit card debts to obtain one monthly payment. Done correctly, you can save both time and money. Your budget will be easier to manage with just one monthly payment. If you are having trouble paying everything monthly, you’ll no longer have to decide what has to be paid this month and what can wait until next.
Usually, this one payment is lower than all of the other payments added together. Interest rates are often lower for the larger loan that it is on some of the individual debts. Over time, the lower payments and interest rates will save you money.
Credit Card Consolidation Methods
Credit card debt consolidation can happen in a couple of ways. One is to take out a personal loan for an amount to cover all that you owe to the other companies. Another is to roll all of your credit card debt to a lower interest rate credit card.
It’s important to avoid mistakes when you do debt consolidation as it can cost you time and money, not to mention your credit score in the long run. Financial experts agree that debt consolidation can be a smart financial move, because it simplifies your debt, help you to pay less in interest, and get out of debt faster, but it also has its risks. Never rush into debt consolidation.
Your Credit Score Matters
Being in debt and over your head can be stressful, and you probably want to get out of it as soon as you can. If you rush, though, it can wind up costing you money. People with higher credit scores tend to get lower interest rates; so financial experts agree that if you can, you should improve your credit score before getting a debt consolidation loan or rolling your debt over to another credit card.
You can improve your score by pulling your credit report and looking for ways to make small changes that can have a big impact. This includes disputing an error or scheduling a few on-time payments to lower credit utilization. These can impact your score by 50 to 100 points. If you rush, you may have to settle for a higher interest rate, when if you had waited and done your homework, you could save thousands of dollars over the course of the loan.
Mind Your Spending
The next mistake is not addressing the issues that got you into the financial mess in the first place. Many people have bad budgeting habits, and if you don’t address this issue before you consolidate, there is a good chance you’ll wind up in the very same situation you were in before a few years later.
Learn to budget and how to stick to it before you consolidate and be sure you don’t charge any non-essentials. It’s also a good idea to cut up all the credit cards except for one to have in case of an emergency.
Choose the Proper Method
Another mistake people make is choosing the wrong way to consolidate their debt. Consolidation loans are available for a wide variety of credit scores, but if your score is low, you won’t get a good interest rate. A high interest rate means you will more over the course of that loan than you would have if you had paid the debts separately. It may seem like a good idea in the short term, but you want your consolidation to keep you in good financial standing.
Consider an Alternate Approach
If your credit score is less than ideal, going with a debt relief company like the one you’ll find at https://www.freedomdebtrelief.com may be your best option. Not doing your research into these companies is another huge mistake people make. Scammers abound and will gladly take your money but do nothing to help you. A legitimate concern, Freedom Debt Relief has been in business since 2002 and has helped eliminate over $10 billion in debt for its clients.
Other options besides consolidation loans and debt relief companies are available, but they all have their pros and cons. You can check with your credit card companies and see if you qualify for a credit card hardship plan, which will lower your interest rate and monthly payments for a set period of time. Known as forbearance, it will help you gain control of your finances in the short time, but it may not be a good option to help you in the long run. The programs won’t affect your credit score, which is a good thing.
Some credit card companies will also offer settlement programs, which means they allow you to pay a smaller lump sum amount to clear the debt. Although this gets you out of debt faster than debt consolidation. It can have a negative effect on your credit.
Another option would be bankruptcy. However, bankruptcy has many negative consequences, as it stays on your credit for seven years. If you file bankruptcy, you may not be able to get a credit card, a car loan, a personal loan, or even rent a home.
Deciding Which Option to Take
The best options are a debt consolidation loan, rolling your credit card debt over to a low-interest credit card, or going with a debt relief company, such as Freedom Debt Relief. Your credit score is the main indicator as to which one of these is right for you.
If negotiating with a credit card company or a bank for a loan is not something you feel comfortable doing, consider working with a credit counselor who can help you make the best determination and put you on the right path. Just be sure to do your research and find the best one for you.