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What are the Best Ways to Consolidate Credit Card Debt – Debt Consolidation Tips and Tricks

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Debt is not a bad thing and credit cards aren’t something to fear, they’re both necessary tools when used properly. However, sometimes, for whatever reason, we find ourselves over our heads and need to get our credit card debt under control. In this article, I will talk about some of the proven ways you can consolidate your credit card debt.

In the right hands, credit cards can be very useful tools to, not only obtain the items you need but to also improve your financial survival. However, far too often just the simple use of a credit card can lead to financially harmful habits including:

  • The feeling you’re receiving merchandise without paying at the point of sale.
  • Promising yourself, if you allow yourself this one luxury you’ll pay it off when the bill comes due. Then some other important financial need pops up.
  • Buying the more expensive item with the plan to pay it off over time.
  • Being more free minded with your money when you aren’t limited to the cash in your wallet.

Debt Consolidation for Average Americans

In America, credit card debt is on the rise again. The average household in the United States carries a credit card debt of $15,762 on average, with an average interest rate of 13.70%. This is scary, especially when you consider the fact that these American households can expect to pay over $2,000 in interest over the next year if they only pay the minimum payments. Why consolidate your credit card debt? When you consolidate your credit card debt you’re able to combine all of your debt into one payment, at a lower interest rate. This enables you to pay down your debt faster for less money. Many lenders, especially store and gas credit cards, charge high interest rates. They can do this because they don’t have the high credit requirements that major credit cards have. Their lower requirements make them easier for people to begin building their credit portfolio, so they are most peoples’ first stop. Consolidating your credit card debt, when you receive a debt consolidation loan, you take the money you receive and pay off all of your outstanding credit card debt from your other creditors. The major benefits you stand to gain when consolidating your credit card debt include:

  • A lower interest rate – A lower interest rate saves you a considerable amount of money in finance charges and takes years off your debt repayment.
  • Easier payment plan – Managing your debt can be difficult and confusing if it’s spread out over several credit cards, rather than organized into one payment.
  • Raising your credit score – When you have maxed out credit cards your utilization ratio increases causing a negative impact on your credit score. When you pay off all of your credit cards with a consolidation loan it raises your credit score.
  • Popular consolidation loans – There are three popular ways to consolidate your credit card debt, lower your interest rate and pay your debt off quicker.

Obtaining a personal loan with a low interest rate has become increasingly easy because of the rise in marketplace lenders. It helps to carefully shop around for a personal loan with the best interest rate. A person with good credit can expect to find an interest rate of 10% – 15% or less, so it pays to do careful research.

Home Equity Loans & Balance Transfers on Credit Cards: Explained

This type of loan is one of the most common forms of credit card debt consolidation. The benefit of a home equity loan is its low interest rate and the ability to deduct the interest, in some cases, you can obtain an interest rate as low as 3.74%. The drawback to this type of loan is the fact you use your home as collateral. Several credit card companies offer interest rates of 0% if you transfer the balance from another credit card to their card. This could be your best option if you have great credit and a relatively low debt balance.

Debt Management Companies Explained

If you’re struggling to pay off a high credit card debt and don’t have a good to great credit score you may be tempted to contact a debt management company. These are the lenders you usually see in TV commercials. Debt management companies will usually use enticing marketing language that makes them sound like a consolidation loan or more appropriately an easy answer to all your prayers. Think, “If something sounds too good to be true, it usually is.” These companies will have you start paying them and hold your money in an escrow account but won’t pay the credit card companies with it. Your accounts will then become delinquent, your credit score will tank and you’ll start receiving collection calls. The company will then attempt to negotiate a settlement on your behalf. Usually, credit card companies will aggressively attempt to collect the money owed them for the first six months, after that the debt is written off and sold to collection agencies for a fraction of their actual value. These collection agencies will usually agree to a discounted settlement since they didn’t pay the full value of the debt. The programs usually take a couple of years to complete and the negative information will remain on your credit report for seven years. Of course, the debt management companies will charge you their fee for something you can do yourself for free.

How to Lower Your Debt

If it comes to the point where you’re struggling and you have no other options, you can contact your credit card companies to attempt to lower your debt and make payments that are more affordable. This will still remain as a negative mark on your credit report but at least you’re not paying someone else to do the legwork for you and increasing your debt, rather than lowering it. At one time or another, most of us find ourselves in financial difficulty with our credit cards. However, the route you take to correcting these problems makes all the difference. Do the in-depth research, weigh all of your options and use the tools that will benefit your specific situation and eventually you’ll solve your credit card problems.