Credit card debt has, more or less, always been a very big issue for many people. Nowadays, it is safe to say that many people in the United States are experiencing problems with credit card debt. However, this should not come as that big of a surprise given the state of the economy environment that we live in, the costs of living expenses and the poor way that many people manage their budgets. When you combine all these factors, you get the inevitable – a great amount of credit card debt.
Why are so many people battling with credit card debt?
We have pointed the main factors above. To go a bit more in-depth, we need to understand the details that normally push people to the financial edges.
- For many people, the problems come from just their regular monthly bills. The truth is that the costs of regular bills have increased a lot in the last decade while the level of average income has not increased at all. That directly makes it hard for people to make their monthly payments without going beyond their credit card limits. And even those with better jobs and, therefore, better monthly income, also are often in trouble as there are some expenses that you cannot really prepare for.
- Unexpected emergency expenses have always been a problem for many people. However, if in the past, many people were able to deal with such expenses with their safety funds, not that many people have safety funds or their safety funds are simply not big enough to allow them to deal with such emergency expenses on their own.
- Now that it is pretty clear that the whole economic environment does not really make it easy for people to sustain a good financial state. Add the chaotic and poor way that people are managing their finances and you can easily see why credit card debt is once again probably the biggest economy issue of today. There are many people who tend to spend more money than they actually have, and not because of larger electricity bill or an emergency expense, but because of their desire to have a lifestyle that is way beyond their salary. Poor budget management can get you into financial trouble even when the economy is thriving.
Given all of these factors, is it even possible for the people with credit card debt to deal with all their debts and to have their financial freedom back? With the right tools and mindset, it is absolutely possible.
How to pay off credit card debt
As with any type of debt, there are a number of ways in which a person can tackle that debt and get rid of it. Every person’s situation is different and so are going to be the answers for his specific financial problems. Among the different ways for managing debt, there is one that is most commonly used by many people with multiple credit card debts and that is credit card debt consolidation.
What is credit card debt consolidation?
To consolidate your credit card debts basically means to transfer the balances of all of your existing credit cards into a single credit card. And with that, going from a number of monthly payments with different interest and fees to a single credit card debt monthly payment with a single interest rate to keep track of. However, although credit card consolidation can really have a massive positive impact on your financial life, there are situations where credit card debt consolidation may not be the best options.
Credit card debt consolidation that can benefit your financial life
When you shuffle your multiple debts into a single debt consolidation loan, you may get benefits such as:
New, lower interest rate
The whole idea of consolidating debt is to make your debt repayment a bit easier and a bit quicker. By lowering the interest rate on your debts, you would be able to save a significant amount of money and time over the whole repayment period. In order to get a debt consolidation loan with a lower interest rate, you would normally need to have a good credit score. Otherwise, you may not be able to qualify for a debt consolidation loan with better loan terms.
One payment instead of many
This is always going to be one of the best benefits that almost every type of debt consolidation offers. Carrying debt across a number of different credit cards can be really hard to manage, it can often leave you stressed out and exhausted. Having just a single monthly payment instead of a number of different payments will enable you to focus on just this payment which will allow you to save a lot of time and stress and will minimize the chances of late payments, as it is far easier to keep track of a single monthly bill instead of multiple debt repayments.
It can improve your credit score
By consolidating your credit card debts with a debt consolidation loan, you will be able to reduce the overall utilization on your credit cards and utilization ratio can often have a massive negative impact on the state of your credit score.
How to consolidate credit card debt
There are many ways that you can consolidate your credit card debts to consolidate your multiple credit card debts and have a lower interest rate, which is one of the most important things that you need to look for. You can usually choose three methods of consolidation:
Lines of credit and home equity loans
Consolidating loans with lines of credit or home equity loans was probably the most popular way for consolidating credit card debt until the financial crisis in 2008. Home equity loans have lots of benefits, the main of which is probably the lower interest rate that you are often able to get for your loan. There is, however, a downside and that is that in order to qualify for such a loan, you would need to use your home as a collateral. Therefore, you will be putting it at risk in case you fail to repay your home equity loan. With that being said, if you are confident that you can make your payments on time, a home equity loan is really worth the consideration, especially if you are able to qualify for a really low-interest rate loan.
With the tremendous growth that the loan lending industry has had in the past decade, there are many private loan lending companies where you can apply for a personal loan. The fact that most of these lenders are operating online will allow you to easily find different loan lending companies and compare what they have to offer. That way, you can find a loan lender who is best suited for your specific financial needs. Getting a personal loan from a private loan lending company is possible even with a bad credit score. However, if your credit score is poor, you will most likely have no chance of qualifying for a loan with a lower interest rate.
Credit card balance transfers
Transferring the balances of your credit cards to a brand new credit card with a significantly lower interest rate may be a great option for you. You need to keep in mind, however, that although there are many loan lending companies that advertise 0% interest rate credit cards, that is going to stay that way only for a limited time. In case you are considering this option, you would need to get all the information that you possibly can before making your choice.