If you use credit card consolidation properly, you can get out of debt you have been stuck in for a long time. Ideally, making monthly payments should get you out of your debts, but sometimes, it does not work. You may find it harder to make payments consistently, and the debt may grow. In this case, credit card consolidation can provide a way out.

Credit card consolidation is a process where you combine all your credit card debts into a single payment at the lowest rate possible. Without this consolidation, you will need to make several payments monthly, and the interest rates may also vary, and unfortunately, most of them will be high. This situation makes it hard to manage your debt.

Credit card consolidation is not a completely easy process. It does not work for every financial situation. If you do not do it properly, your financial situation may be worse off. That is why it is essential to use credit card consolidation cautiously.

These ten tips will help you to use credit card consolidation correctly. Before we talk about these tips, we acquaint ourselves with the term credit card consolidation.

What is credit card consolidation?

Credit card consolidation is one type of financial solution where you combine multiple credit card balances into a single payment. The objective of this type of consolidation is to reduce the interest rate on the balances or completely remove the interest rate on these balances.

Reducing or eliminating these rates make it easier for you to clear your credit card balances. You will no longer waste money on credit card interest rates. You can focus on paying off the debt on the card. Thus, you can pay off your balances quickly.

Options for Credit Card Consolidation

There are several ways to consolidate your credit card. We will focus on the three primary ones. Two of the solutions involve DIY procedures, while the other one involves getting help from a professional. With the DIY methods, you need to take a loan to refinance your credit card balances. With the technique that involves getting professional help, you need to set up a repayment plan with the help of a credit counseling agency. This means that you will still owe your original creditors, but you will have a more efficient method of getting rid of the debt.

Method 1: Credit card balance transfer

This involves moving your credit card balances to a new balance transfer credit card. The credit card balance transfer credit cards usually have 0% APR, and you will have a limited time to pay off your balance without incurring an interest rate. If the introductory period elapses, you will be required to pay interest on the card.

Method 2: Debt consolidation loan

This solution involves taking out a low-interest unsecured loan to pay off your credit card balances. You will be left with the low-interest loan to repay.

Method 3: Debt management program

With this method, a certified credit counselor will help you to create a repayment plan that you can afford. They will then negotiate with your creditors to reduce the interest rate. Sometimes, they even succeed in negotiating for an elimination of the interest rate.

The best method out of the three depends on your financial situation. This includes your credit score, the amount you owe, and the amount you can spare for monthly payments.

Now, let’s take a look at the ten tips.

Stop incurring more debt on the card
Making people assume that they can make more charges to their credit card ones they take a step to clear the debt. This is a wrong assumption; doing this only draws you further away from your goal of clearing your credit card balance. Try as much as possible to draw a budget that will cover all your household expenses. Then make sure you allocate funds for these expenses without relying on your credit card.

Avoid DIY solutions if you have a bad credit score


You need a good credit score to save on interest rates. That is the only way your credit card consolidation will be successful. You can only qualify for a good interest rate if you have a good credit score. If you don’t have a good credit score and you try to consolidate your credit card, you may get an interest rate that is too high, and you will not save on the rates. This will bring you back to the high debt once again. To consolidate your debt successfully, you need a loan with a minimum interest rate of 10%. Ideally, the rate should be 5%.

Don’t convert unsecured debt to secured debt
In most cases, credit card debts are unsecured debts. A property does not back them, and that means that the creditor cannot take any asset of the debtor in case he or she is unable to pay the debt. This type of debt is safe for the debtor since he or she does not stand the risk of losing his or her property. Some people think that it is a good idea to use home equity loans to consolidate your debt. Home equity loans are secured loans. Although the consolidation may work out just fine and you may enjoy lower interest rates. You will risk a foreclosure if you fall behind on payment. Hence, use only unsecured loans to consolidate your loan.

Be aware of debt consolidation fees and costs


Debt consolidation comes with some associated costs and expenses. Take note of these and make sure they are not too much. Some fees can take up all the money that you will save on interest rates. Try to avoid these costs. If the consolidation comes with high costs and fees, it is better that you avoid the debt consolidation altogether.

Don’t be afraid to ask for help
It is difficult to talk to someone about your financial situation. Especially when you are not doing well financially. But don’t be afraid to talk to people who can help you out. If you don’t have a strong financial position, it is better to speak to someone who has.

Don’t get discouraged along the line
Debt consolidation is a long process, and it takes a lot of dedication to make it successful. Some people are initially excited about getting rid of their debts, and they try everything possible to make it work. But along the line, it gets tough for them to stick to their budget. They end up going back to their old ways of excessive spending. If you are on a debt management program and you slip back, and you stop making payments, the creditors will restore your initial interest rate and even add penalties. You should, therefore, choose a plan that will help you get out of debt quickly. A 5-year period will be too long, and you may slack along the line.

Never confuse debt consolidation with debt settlement
Many people confuse debt consolidation and debt settlement, but these two are not the same. Consolidation pays off every debt you have, while debt settlement creates a negative remark on your credit history for seven years.

Be cautious with new financing
It is quite easy to qualify for new loans when you consolidate. Debt consolidation improves your credit utilization ratio and builds up a positive credit history, and if you are not cautious, you will end up taking out more new credit. You need to be cautious so that you do not go back into debt by taking out new credit.

When you clear your debt, remember to check your credit

best types of credit card debt consolidation

Creditors are supposed to inform credit bureaus that your debt has been paid so that your account can be updated. However, you need to cross-check to ensure that there are no errors. Download your credit report from all three bureaus at annualcreditreport.com. You are allowed one free download per report each year. Check to ensure that your zero balances reflect on your report. All payments made on time should show on your report. If you have paid account collections on your account, it should be closed. Finally, ensure that all your accounts are currents.

Learn from your mistakes
It is easy to slip back into debt if you go back to your previous lifestyle. Try to maintain a good financial habit so that you can maintain healthy finance. You can do this by setting a budget and sticking to it. Have a saving fund for contingencies. Ensure that you do not spend more than 10% of your income on credit card debts.

Step by Step Instructions for Credit Card Debt Consolidation

Now let’s talk about each debt consolidation method in detail. This will make it easier for you to choose a method that will work for you.

Balance transfer

You should have an excellent credit score. Your minimum FICO score should be 740, and your debt should be less than $5000. You should also qualify for a 0% APR introductory rate. For you to successfully clear your debt with a balance transfer, you need to make high monthly payments.

Debt consolidation loan

You need a minimum FICO credit score of 670 to qualify for this loan. Your debt should be less than $25,000, and you should be eligible for a maximum APR of 10%. Your monthly payments must be lower than your current total monthly payments.

Debt management program

You can still use this method if you have a bad credit score. You can use this program for debts that fall within the range of $10,000 to $100,000. The credit counselors should be able to negotiate your interest rate so that it will fall below 11% on the average.

How to Consolidate Credit Cards with a Balance Transfer

Like we mentioned earlier, you should consider balance transfer if you have excellent credit and minimum balance. The idea is for you to pay off your debt before the APR introductory period ends. To get started;

  • Shop for credit cards with zero percent APRs with the most extended introductory periods. The periods usually range from 6 to 18 months. You should target the ones that offer 0% APRs for at least 12 months. Look for the ones that charge low fees as well.
  • Apply for the best card among the options you find. Do not apply for multiple credit cards since it can affect your credit score.
  • You can begin to transfer your balance when you open the new account. A customer service representative can help you out. You should, however, get the account numbers for your balances ready for the process. You can also set it up online yourself.
  • Have it mind that every balance you transfer will incur a fee. Some charge a fixed rate, which ranges from $3. Others charge a percentage of the balance you transferred, and this can also range from 3%.
  • Now, quickly pay off your debt before the introductory rate ends. You can do this by dividing the total amount by the number of months in the introductory period. This will help you to arrive at a monthly payment that will help you clear the debt by the end of the period.

How to Consolidate Credit Card Debt with Personal Loan.

This is another DIY method where you take out a personal loan to pay off all your credit card debts, and then you will be left with only that debt to pay. If you want to make monthly lower payments, this is the best option for you. With this method, the low APR will help you to get out of debt faster, even with the low monthly payments. Her is how to get started.

  • Shop for the right debt consolidation loan.
    Look out for low APRs, low fees, and a loan that gives you a payment term that you are comfortable with.
    Apply for the best loan option
    Remember to apply for only one loan because making multiple applications can hurt your credit score.
  • Choose a loan term that will work best for you.
    If you choose a longer loan term, you will be making lower monthly payments, but your overall fees will be high. If you select a shorter period, your monthly payments will be high, but you will end up paying lower fees. You will get out of debt faster too.
  • Once your loan is approved, the funds will be disbursed.
    Some lenders will give you the funds to pay off your creditors. Others will pay it directly to your creditors.
  • Pay off your loan with fixed payments
    This depends on the conditions of the loan. If the loan does not come with any prepayment penalties, pay off a large chunk of the loan if you can afford to.

Consolidating Credit Card Debt Through a Debt Management Program

In instances where you are unable to consolidate your credit card debts because your credit score is low and your debts are too high for a DIY solution, you need to get help.

  • Get in touch with a non-profit credit counselor for a free credit evaluation
    The credit counselor will evaluate your debt situation to see if you can do it yourself or not. If they conclude that you cannot do it yourself, then you qualify for a debt management program.
  • Your credit counselor will help you to create a payment plan that will work for you.
    The monthly payment will include both setup and administration fees.
  • The credit counseling team will then call your creditors to negotiate with them.
    They negotiate with your creditors for a reduction or elimination of interests. They also talk to your creditors about penalties they charge on your debt.
  • When all your creditors agree to accept payments through the program, your plan starts.
    You will need to make one payment to the debt management program, and they will distribute it to your creditors.
  • You have not cleared your debt with your creditors
    People assume that ones they are in a debt management program; they no longer owe their creditors. That is not true; you still owe them. The program helps you to be consistent with your payments.

You should note that when you enroll in a debt management program, your credit cards will be frozen. You won’t be able to open new credit accounts as well. This may be difficult to deal with, but it will help you in the long run. It will help you to develop a habit where you won’t rely on your credit cards. You won’t be incurring more credit card debts.

Questions

How to consolidate credit card debts?

There are three ways to consolidate credit card debts. We have discussed them in the above article.

How to consolidate credit card debts on your own?

You can consolidate credit card debts on your own using two methods.
One involves credit transfer, while the other involves taking out an unsecured loan to pay off your debt. Both have been discussed above.

How to consolidate credit card debt without hurting your credit?

All the processes will help your credit in the long run. But if you want to consolidate without hurting your credit, make sure that you do not make multiple applications for loans or zero interest balance transfer cards during the process.

Should I consolidate my credit card debt?

Credit card consolidation helps you to get rid of your debts if you are stuck in debts. If you are finding it hard to keep track of your debts and your debt keeps growing, you should consider credit card consolidation. But if your credit card debts are manageable and you can pay it off within six months, there is no need to consolidate.

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