Credit card debt is undoubtedly one of the biggest financial issues of modern society. There are millions of people across the world who are struggling with credit card debt. In the United States of America, it is safe to say that most people are experiencing difficulties with different types of debt, with credit card debt being one of the most common forms of debt. If you are going through a hard financial situation, you need to know that there are certain tools and methods that you can use to deal with all your credit card debt a lot faster and easier.
Getting rid of credit card debt
You can get rid of your credit card debt in a number of different ways. Every person’s financial situations is different. So if a certain method works for you, that may not count for another person even if he is in a similar situation. However, there is a method for dealing with credit card debt that is used by many people with multiple credit card debts. That is credit card debt consolidation.
What is credit card debt consolidation?
There are different types of credit card debt consolidation. Each of these types involves the combining of your many credit card debts into a single monthly bill. Consolidating your credit card balances into a single monthly bill can dramatically improve your financial life and enable you to get rid of all your debts faster. That is because credit card consolidation can potentially give you many different benefits. We say potentially because as with most things in life, for your credit card consolidation to work, it has to be done correctly. Also, your specific financial situation needs to be suited for such method for paying off debt.
Considering credit card debt consolidation
As with every big financial decision, to make the best choices for your financial future, the more information you have, the better your chances are when it comes to making a good decision. And so in case you are considering to consolidate credit card debt, you should know the benefits that such financial decision can get you, the different options for a credit card debt consolidation that you can choose from, as well as the things that you should be aware of and what to avoid.
Benefits of credit card debt consolidation
There are many things that can convince you to choose credit card debt consolidation as your preferred method of dealing with multiple credit card debts. Here are some of the main features that consolidating your credit cards can bring you:
An improved state of your credit score
In case you have maxed out all of your credit cards, that means that the utilization ratio on these cards is going to be quite high. The utilization ratio on your credit cards can potentially have a huge negative impact on your credit score. When you are paying off all of your credit card debts with a loan, you would be able to reduce the utilization ratio on all these credit cards. With that, you will be able to significantly improve your overall credit score.
A far more convenient monthly payment
If you carry debt on a number of different credit cards, you probably are well aware of how difficult it can be to manage all these debt payments. By consolidating your credit cards into a single monthly payment, you will be able to relieve a lot of the stress by being able to focus only on a single monthly payment instead of having to keep track of many different bills.
A new, lower interest rate
Probably the most important thing that you should be looking for when consolidating your credit card debts is to lower the overall interest rate that you are paying on your debts. When you consolidate your credit card debts into a single monthly bill, you can get lower interest rate. If you manage to do that, you will definitely save a lot of money over the course of the whole repayment period. You need to keep in mind that whether you would be able to qualify for a consolidation with lower interest rate or not would mainly depend on your credit score.
Different types of credit card debt consolidation
Credit card balance transfers
Credit card balance transfers are a very popular way for dealing with multiple credit card debts as you would normally see a lot of credit card companies advertising credit card balance transfers to a 0% interest credit card. While this can be a great option, you need to keep in mind that this interest will not remain at 0% for the whole period. You need to find out what your interest rate is going to be once it changes.
Nowadays, the loan lending industry has grown so much. It has gotten to a point where there are numerous different loan lending companies which you can easily compare and choose the loan lender with the best loan terms for your specific financial situation. While it may have been a bit difficult to compare multiple different loan lending companies and what they offer, nowadays it is quite easy to do it since most private loan lending companies have online websites that you can explore. That way you would most likely be able to find a loan with lower interest rate. Again, the terms of your personal loan may be very much dependent on your credit score.
Home equity loans
If what you want most out of all by consolidating your credit card debt is to get a lower interest rate, home equity loans are probably the most secure way to do that. In many cases, by qualifying for a home equity loan you would be able to get a loan with significantly lower interest rate than what you are paying for your multiple debts. However, this lower interest rate comes at the price of endangering your property. This is because in order to qualify for a home equity loan, you would have to use your house as collateral for the loan. Which means that if you fail to make your payments on time, you may actually lose your home.
Credit card debt consolidation that you better stay away from
While credit card balance transfers, home equity loans and personal loans can be a great financial tool, especially if you have a good credit score, a rather stable source of income and looking for a way to get rid of your debts faster. If you are having real difficulty paying your monthly bills, rand you do not have the best credit score, you may be tempted to use the services of a debt management company.
Debt management companies
These companies will often offer you a service that resembles a debt consolidation loan. However, what they normally offer is quite different. Normally, debt management companies will want you to start making your debt payments to them, instead of your creditors. They will assure you that you will be able to get rid of your debt more easily this way. However, in many cases, these debt management companies will hold your funds in escrow accounts which can lead to a very negative impact on your credit score.